Author: tfwee
SPH – CS
Across-the-board double-digit rise in ad demand
● According to the CS Page Monitor, newspaper ad demand accelerated further in 2Q FY10E.
● Estimated total classified volume jumped 12% YoY in the first two months of 2Q FY10 – a big improvement from the reported 6% decline in 1Q classified ad revenue. The strong showing is attributable to the 47% YoY surge in job ad volume during the period. While partly due to seasonal effects, the strong job ad demand is in line with the healthy pick-up in the Singapore economy.
● In addition, our page count indicates that display ad volume improved 10% so far in 2Q FY10, versus the reported +2% YoY growth in 1Q FY10 display ad revenues.
● We have raised our earnings forecast to reflect the sharp pick-up in ad demand and expect further consensus EPS upgrades – our FY10 earnings forecast is now 7% above street expectations.
● The stock continues to trade at a substantial P/E discount to the market. Our new target price of S$4.67 represents 24% potential upside from here. We maintain our OUTPERFORM rating.
SingTel – AmFraser
Optus and Telkomsel to boost 3QFY10 results
• SingTel will report 3QFY10 results on 9 February. We expect a hefty boost to earnings from effects of forex movements. Off a low base in 3QFY09 – when all its overseas contributions were hit by adverse movements in exchange rates – we expect SingTel to report strong YoY growth of at least 18% (i.e. S$940mil net profit) for 3QFY10.
• On the upside, strength of the Australian dollar (A$) and Indonesian Rupiah (IDR) against the Singapore dollar (S$) bodes well for contributions from wholly-owned Optus in Australia and 35%-owned Telkomsel in Indonesia. YoY, the A$ surged 27% and IDR appreciated 7%, on average for October-December 2009.
• In addition, contributions from Telkomsel will be on back of significant turnaround in earnings, as 3QFY09 was an extreme low point due to intense price wars, which has since abated.
• In 3QFY09, Telkomsel accounted for 13% of SingTel’s earnings, Optus contributed a fifth, while operations in Singapore made up 37%.
• On average, the S$ strengthened about 2%-3% YoY against the Indian Rupee (INR), Thai Baht (THB) and Philippine Pesos (PhP). Adverse impact will be felt most from Bharti’s contribution. In 3QFY09, Bharti accounted for a hefty 21% of SingTel’s earnings.
• Already, Bharti’s earnings growth has whittled to a mere 2% for 3QFY10 (reported 22 January) with competition heating up in India – a far cry from 20%-30% growth enjoyed in the past. A hike in SingTel’s holdings from 30.43% to 31.95% from November 2009 represents about 0.5% boost for 3QFY10.
• QoQ, we expect SingTel’s performance to be lacklustre over a high base in 2QFY10. Benefits from forex movements will be less felt as the A$ appreciated a moderate 6% QoQ with the IDR at a mere 2% – with marginal downside bias from INR, THB and PhP rates.
• SingTel’s third-tier telco associates – PBTL in Bangladesh and Warid Telecom in Pakistan – which are still in the red, will see losses dragged further by adverse forex movements. The S$ rose 7% and 12% against Bangladeshi Dhaka (BDT) and Pakistani Rupee (PKR) YoY, respectively. QoQ, S$ rose 3%-4% against these currencies.
• Maintain HOLD rating with fair value at S$3.05/share.
SingPost – OCBC
Achieves better-than-expected results
Results above ours and street’s expectations. Singapore Post (SingPost) reported a 12.7% YoY (+7.2% QoQ) rise in revenue to S$139.6m and a 20.6% YoY (+8.9% QoQ) growth in net profit to S$44.1m in 3QFY10. Results were above ours and the street’s expectations as 9M10 net profit accounted for 81% of our full-year estimates and 84% of Bloomberg’s mean earnings estimate. Underlying net profit (PATMI excl. one-off items) rose 6.3% YoY to S$38.9m if we strip out S$2.9m amortization of deferred gain on intellectual property rights (recall acquisition of Postea in May 09), S$2.0m from the Jobs Credit Scheme and S$0.3m from the property tax rebate (Singapore Budget).
Mail and logistics boosted revenue. A rebound in international mail revenue contributed to the upside surprise, rising 23.7% QoQ after last quarter’s 3.4% decline. Quantium Solutions also contributed to higher logistics revenue which rose 7.9% QoQ. We understand that the international mail segment recovered with better business conditions, and also because SingPost secured new customers last quarter, which is a noteworthy fact. Management, however, is not popping the champagne yet as this segment may continue to experience pricing pressure.
Initiatives pay off. Though rental and property-related income grew 22% YoY, the extent of increase is actually much smaller on a sequential basis (+1% QoQ). Higher rental income from the Singapore Post Centre and the leasing of space at repurposed post office buildings boosted on-year income, which would have suffered if such initiatives did not take place, as we understand that average retail rental has fallen to about S$8/sq ft compared to S$15/sq ft during the peak around 2H08.
Growing its reach. SingPost has reiterated that it wants to expand its regional presence. The group currently covers 11 cities in India and is intent on growing its business there. Management also revealed that another area which may present opportunities is the Philippines. Meanwhile, SingPost also aims to grow the logistics, retail and other businesses to reduce its dependence on mail revenue. With the consolidation of Quantium Solutions, we note that the proportion of mail revenue to total sales has fallen from 77% in 4QFY09 to 68% in 3QFY10.
Maintain BUY. SingPost’s operating cash flows remain strong. We have tweaked our estimates to account for the betterthan- expected results, increasing our fair value estimate to S$1.16. With an upside potential of 14.6% and a projected dividend yield of 6.2%, we maintain our BUY rating on SingPost.
SingPost – CIMB
Boosted by logistics revenue
• Above; maintain Neutral. 3Q10 earnings of S$44.1m (+20.6% yoy) were 8% above consensus and our estimates, accounting for 29% of our full-year estimate. The outperformance came from higher-than-expected revenue. We have raised our FY10-12 estimates by 2-8%. From Jan 2010, onwards, opex would rise due to higher net terminal dues for international mailing. After adjusting our DPS assumptions, our DDM-derived target price (discount rate 7.3%) also rises from S$1.09 to S$1.11. Although dividend yields are rather attractive at 6%, we remain Neutral on the stock due to a lack of catalysts.
• Logistics revenue drove growth. Revenue grew 12.7% yoy to S$139.6m, thanks to an improving economy and contributions from Quantum Solutions (QS). 9M09 net earnings grew 9.3% yoy to S$124.1m. In line with expectations, 3Q10 dividend was 1.25cts/share.
• Improving economy boosted topline. Mail revenue dipped 1.2% yoy on declines in domestic and philatelic mail, slightly offset by higher international and hybrid mail. Logistics revenue growth of 166% was attributed mainly to QS. Retail revenue was up 4.1% yoy. Rental and property-related income rose 22.2%, thanks to higher rental income from Singapore Post Centre and the leasing of space at repurposed post-office buildings. Operating expenses climbed 8%, because of the consolidation of QS.
• Outlook. SingPost is cautiously optimistic on its outlook, given an improving economy. We believe that more acquisitions could be in the pipeline as part of its regional expansion strategy, which means that cash could be preserved for this purpose. It has maintained its dividend policy of a minimum 5cts/share.
SingPost – DBS
6% yield plus stable earnings outlook
At a Glance
• 3Q10 net underlying profit of S$38.9m in line
• Management guided for up to 5% adverse impact on FY11F earnings from higher terminal dues.
• 1.25 Scents DPS declared, as expected
• HOLD with TP of S$1.05 based on 6% target yield.
Comment on Results
Net underlying profit of S$38.9m (10% qoq, 6% yoy) was in line with our expectation of S$38m. Non-cash gain of S$2.9m on recognition of intellectual property rights and S$2m gain from job credit scheme were not included in underlying net profit. The key surprise came from growth in international mail (+24% qoq) as company secured a new customer. 3Q10 also benefited from seasonal pick up at new subsidiary Quantium, which was acquired in 1Q10. Quantium contributed S$31m in revenue (up 9% qoq). Rental income also showed a slight improvement q-o-q.
Effective Jan 10, Singpost has to pay higher terminal dues for international outbound mails, as Singapore is now re-classified as a developed country in the postal world. Management guided this could have an adverse impact of up to 5% on earnings, although they would try to minimize it.
Recommendation
Dividend yield of 6% is secure while Singpost looks out for possible acquisition targets. With two small acquisitions made in 2009, Singpost is looking for more acquisitions in the logistics segments, in order to grow its business. We do not see any risk to stable earnings of Singpost and recommend HOLD for a 6% yield.