Author: tfwee
SBSTransit – BT
SBS Transit, Vicom drop share issue general mandate
Move in response to shareholders’ expectations
IN a move that must have delighted shareholders, SBS Transit and Vicom – both subsidiaries of transport group ComfortDelGro – decided at their respective annual general meeting yesterday to drop a general mandate to issue shares.
In his AGM address, Lim Jit Poh, who is chairman of both companies, said: ‘We have decided to remove the general mandate to issue shares up to 50 per cent from this year’s AGM agenda. You will recall that we reduced the mandate to issue shares on a non-pro rata basis from 20 per cent to 10 per cent last year. We have now gone one step further and reduced it to zero.’
‘Such is our response to the changing business environment and investors’ expectations. We do not take our shareholders for granted. We respect their rights, just as they have shown confidence and trust in us.’
Earlier in his address, Mr Lim touched on the economic crisis and the group’s continued stress on the importance of good corporate governance.
The decision to drop the share issue mandate came despite a move by the regulatory authorities to allow companies to issue shares up to 100 per cent of their existing capital through pro-rata renounceable rights issues – versus 50 per cent previously.
Mr Lim also addressed the issue of an apparent dip in both companies’ dividend payout ratio, saying the management remained committed to the policy of paying half of its net profit as ordinary dividends.
‘Analysts say that this is a sharp drop compared to the previous years,’ he said.
‘What they have forgotten is that we paid out more than 50 per cent in dividends in previous years because we had to use all of our Section 44 tax credits within an approved time frame. We have always said that if we have no use for excess cash, we will declare more dividends,’ he added.
Mr Lim said SBS and Vicom are ‘monitoring and cutting costs where necessary as well as controlling all receivables’.
Capital expenditure has been frozen, and ‘all senior staff have had their salaries frozen and bonuses reduced’. He added: ‘The board has also decided that directors’ fees for 2008 should remain at the same level as that of the previous year even though there is a case for an upward revision in light of added responsibilities and duties.’
Mr Lim said the companies are financially sound and that ‘we are comfortable with our management practices and pursuits despite the present financial and economic crisis’.
SMRT – DBS
As expected as train arrivals
• 4Q09 results within expectations
• Train ridership up by a firm 9% y-o-y, but expect slower growth in FY10F.
• Dividend of 6 cents, bringing full year dividends to 7.75 cents
• Maintain Hold with TP: S$1.65.
4Q09 net profit $39m (+8% y-o-y). 4Q net profit of S$38.7m (+13% y-o-y, -6% q-o-q) was in line with expectations. Topline ended at $116.2m, up 4% y-o-y. For full year, revenue and net profit ended at $879m (+10%) and $163m (+9%), respectively. Its MRT, rental and advertising continued to be the main contributors to its operating profit. Bus division was affected by higher diesel costs and maintenance, while losses at Taxi division was due to lower hired out rate and losses on disposals.
Final dividend of 6.0 cents. A final dividend of 6.0 cents was proposed, bringing total dividends to 7.75 cents for the full year. This equates to a payout of 72% of PATMI. Book closure date is 30 Jul 09.
Outlook. Train ridership for FY09 was up 9% to 510.2m rides. We expect ridership to remain relatively firm, albeit growing at a slower pace. We are assuming a 3% and 1% growth for its train and bus ridership in FY10F respectively. Rental should continue to see growth, albeit slower, on higher lettable space. Advertising should be affected by the slower economy.
Maintain Hold, TP: S$1.65. We maintain our Hold recommendation, TP: S$1.65 still based on 14x FY10F PER (mid-trading range). Our forecasts are trimmed slightly by 3-4% largely on a lower ridership growth. We believe the stable operations, relatively resilient business model and a 5% yield should provide support to the share price.
SingPost – DBS
Raising stake in G3AP a positive step
• Increased stake in associate G3 Aspac (G3AP) from 50% to 100% by (i) disposing off its 24.5% stake in another associate G3 Worldwide, and (ii) paying S$15m cash.
• This transaction would raise Singpost’s FY10 and FY11 net profit by 3% each.
• Maintain HOLD and target price of S$0.82 based on 6% target yield.
Restructuring of Spring joint venture. Pursuant to its Spring JV with TNT and Royal mail in 2001, G3 Worldwide and G3AP were established for worldwide and Asia Pacific cross-border business respectively. Both G3 worldwide and G3AP were associate companies of Singpost and contributed to its bottom line. Singpost’s net profit contribution from G3AP and G3 Worldwide in 9MFY09 was S$3.7m and s$1.0m respectively. Singpost has disposed off its G3 Worldwide stake to focus on G3AP business. Overall, by paying only S$15m cash, Singpost would be able to increase its annual net profit by about S$4m, which is fairly impressive in our view.
Singpost wants to focus on Asia Pac. With 100% stake in G3AP Singpost would have full control over the associate and can further leverage its cross border mail platform in Asia Pacific. Management informed us that G3AP is the only company with presence in 10 Asia Pac countries. On the flip side, we cannot rule out the risk of previous partners TNT and Royal Mail abandoning the use of G3AP, adversely impacting its business. We have not assumed this scenario in our model, as we believe that Singpost would be able to get more business for G3AP from other postal operators also.
Maintain HOLD with target price of S$0.82. We believe, Singpost would limit its payout around 5 cents annually due to (i) huge capex of S$100-150m to upgrade or replace its processing machine in 2013-14, and (ii) refinance its s$300m corporate bonds maturing in 2013. Our target price of S$0.82 is based on 6% target yield inline with average historical yield.
SMRT – JPMorgan
FY09 results in line, dividend maintained
• FY09 results in line, DPS maintained: FY09 earnings came in at $162.7MM (+8.5% Y/Y). A final DPS of 6 cents was declared, bringing full year DPS to 7.75 cents. This is the same as FY08. As a result, payout ratio decreased to 72% from 78%, against a minimum payout ratio of 60%.
• MRT ridership grew 8.7% in FY09 against 7.9% in FY08. However, management guided that lower growth should be expected in ridership in FY10. Coupled with the reduction in fares from 1 April onwards, 1Q10 MRT revenue is expected to be lower Y/Y. Circle Line Stage 3 will commence operations in May 2009. Management expects CCL to be lossmaking until all the stages are opened from 2010. We estimate CCL to break even only from FY2012 (2H CY2011 onwards).
• Buses and taxis ended the year in the red: While full year bus ridership was up 3.9%, the segment ended the year with a $4.5MM operating loss although it turned around with a slight operating profit of $0.8MM in 4Q09. Taxis’ losses deepened to $6.3MM due to lower hired-out rate and disposal losses of taxis. Management expects the performance of the taxi business to recover in FY10.
• Risks of losing tenants remains low: Rental revenue and operating profit was up 37% and 39% Y/Y, respectively. Management highlighted that it has not seen pressure on rental rates due to the strong human traffic in its MRT stations in line with ridership growth. Recent rental renewals were in fact at marginally higher rental rates. Tenancy contracts generally last 3 years. However, CCL Stage 3 does not add meaningfully to new lettable space and being all underground stations, CCL will also have relatively less rental space than the above-ground MRT lines.
• Maintain Neutral: We trimmed our earnings forecast for FY10/FY11 by 4%/5% as we reduce our ridership growth assumption for MRT from 8% to 7% as well as factored in potentially higher idle rate for SMRT’s taxis due to increasing competition from other taxi operators. We also maintain our DCF-based Dec-09 PT of S$1.80.