Author: tfwee
M1 – CIMB
Sailing again
1Q09 results preview
Flat core net profit expected. M1 is slated to release its 1Q09 results on 16 Apr 09. We expect a core net profit of S$35m-37m (from S$36.6m in 4Q08) on the back of a 3-4% qoq decline in revenue and 1-2%-pt increase in EBITDA margins. 1Q is a seasonally low quarter, whereas 4Q is the strongest typically, exacerbated by holidays like Chinese New Year and shorter months which would curtail usage. In addition, roaming revenue which makes up about 15% of the total would have been affected by slowing business activity and travel. On the other hand, EBITDA margins should improve from easing subscriber acquisition and retention costs (SARC). On top of that, we do not expect any dividends for 1Q, as has been the practice in the past few years.
Another potential area of weakness in the longer term is revenue from migrant workers, which comprises an estimated 13% of M1’s revenue. This segment may soften if workers are repatriated but we have not seen mass departures as the construction industry remains buoyant.
Main beneficiary of NGNBN. Although M1 lost the OpCo bid to StarHub, we believe it succeeded in forcing the winning bidder to offer low prices, similar to the NetCo experience. The outcome is positive for M1, we believe, as it stands to save almost S$15/month/subscriber as OpCo lowers wholesale pricing from S$35.71 that StarHub charges currently to S$21 and the low prices will help it undercut existing broadband prices. On top of that, NGNBN would allow M1 to compete more equitably and address its current single-product disadvantage.
Any capital-management initiatives? Having lost the bid for OpCo, M1 is relieved of the need for additional capex. Based on our recent discussions with the telco, it seems it is unlikely to declare any special dividends or capital reductions this year. In the current climate, it would be more prudent to reserve cash although its gearing is low. M1’s net debt/EBITDA is 0.7x, substantially below its rivals’ 1.2-1.3x. Historically, except for 2Q07, M1 had undertaken capital-management initiatives when its net debt/annualised EBITDA was below 0.3x.
Valuation and recommendation
Maintain OUTPERFORM, earnings forecasts and DCF-based target price of S$2.13 (WACC: 8.3%, LT growth: 1.0%). The recent OpCo result reinforces our positive view on M1, which is expected to be the largest beneficiary of NGNBN. Rerating catalysts could include improving core net profits, strong dividends and the favourable outcome from NGNBN. We recently upgraded SingTel to our top pick for Singapore, supplanting M1. This is because of receding risks at SingTel and its higher beta, which should benefit the stock in the current bullish market.
SPH – BT
SPH Q2 net profit down 12.6% at $87m
Economic slowdown hits advertising sales; property revenue up 33%
SINGAPORE Press Holdings (SPH) yesterday reported a 12.6 per cent drop in second-quarter net profit to $87 million, from $99.6 million a year ago, as the economic slowdown hit advertising revenue and profits from its print media business.
For the three months ended Feb 28, 2009, SPH’s recurring earnings fell 16 per cent to $93.8 million, and its investment portfolio lost $0.1 million versus a gain of $5.1 million a year ago. Its share of losses from associates and joint ventures was $4.2 million, versus a share of profits of $2.6 million a year back.
Earnings per share for the quarter fell to five cents from six cents in Q2 2008. The group’s net asset value per share was $1.16 at Feb 28, 2009, down from $1.30 at Aug 31, 2008.
Revenue fell 3.7 per cent to $287.2 million.
The core newspaper and magazine segment saw a 13.5 per cent drop in revenue to $204.6 million. Print advertisement sales fell 18.8 per cent to $145.9 million due to fewer recruitment and display ads. But circulation revenue rose $1.5 million as newspapers’ cover prices were raised last October.
The decline in revenue from the print business offset a 32.9 per cent rise to $72.2 million in revenue from the property segment, with the ongoing Sky@eleven development and Paragon shopping mall contributing $16.3 million and $1.3 million respectively to the increase.
The group’s total operating expenses rose 3 per cent to $195.7 million.
Materials, consumables, and broadcasting costs rose 15.5 per cent, due to a 23.8 per cent jump in newsprint costs. Property development costs for Sky@eleven, recognised as more of the project is completed, rose 66.2 per cent to $11.5 million.
Staff costs fell 13.6 per cent to $69.4 million due to lower bonus provisions, despite total headcount as at February rising to 4,016 from 3,814 a year back. SPH’s recent wage cuts took effect only this month.
For the six months ended Feb 28, 2009, the group’s net profit fell 24.3 per cent to $160.1 million, from $211.5 million a year ago. Earnings per share for the half-year were 10 cents, three cents down from H1 2008.
Investment income swung from a profit of $15 million in H1 2008, to a $33.8 million loss in H1 2009, and revenue from the newspaper and magazine segment fell 8.8 per cent to $454 million. Overall operating revenue rose 2.8 per cent year-on-year to $627.4 million.
‘The recession in Singapore is expected to last through 2009 and this would have a continued impact on advertising revenue,’ the group said.
Newsprint charge-out rates are expected to remain high for the year, and to moderate in FY2010. The group’s investment portfolio will also continue to be affected by financial market volatility, SPH said.
The property segment is expected to contribute significantly to recurring profits. Paragon will ‘face downward pressure on retail and office rents, but is expected to provide a recurrent income stream’ along with progressively recognised profit from Sky@eleven.
SPH chief executive Alan Chan said: ‘Trading conditions are expected to remain uncertain until we can see a clear recovery in the economy.’
SPH will pay an interim cash dividend of seven cents per share on May 20, one cent below that paid a year ago. Its shares closed nine cents up at $2.89 yesterday.
TELCO – Phillip
NGNBN OpCo Winner
StarHub is the winner. The Infocomm Development Authority of Singapore (IDA) announced that it had selected StarHub as the Next Generation National Broadband Network Operating Company (NGNBN OpCo). StarHub will establish Nucleus Connect to install equipment for the active infrastructure. It will invest about S$100m and receive S$250m grant from the government for the network. Nucleus Connect will work with OpenNet, which will lay the cables for the network. OpenNet comprises Canada-based Axia and three local companies, SingTel, Singapore Press Holdings and SP Telecommunications.
Commercial services start from 2010. Nucleus Connect is expected to start commercial operations in 1Q 2010. Moreover, by June 2012, 95% of homes and offices can expect to have access to high-speed broadband Internet access.
Nucleus Connect will offer a wholesale price of S$21 per month for a 100 Mbps residential end-user connection and S$121 for a 1Gbps connection. For nonresidential purposes, it will offer a wholesale price of S$75 per month for a 100 Mbps connection.
Impact from NGNBN. Nucleus Connect will also be bringing more retail service providers in addition to the three existing players, SingTel, StarHub and M1. We expect greater competition in providing Internet services and the losers are likely to be the existing players. The benefits will be lower costs and faster access for consumers. In fact, we expect the retail price to range from S$25 to S$30 for a 100 Mbps residential end-user connection and S$140 to S$160 for a 1Gbps connection.
SingTel and StarHub are expected to see erosions in profit margins due to more competitors offering lower retail prices. For M1, which is currently the smallest player in the Internet business, we expect it to grow its Internet subscriber base as there is now greater clarity in the cost of wholesale Internet services. M1 does not have Pay TV and will have to grow its Internet business segment to maintain its revenue growth.
Stock recommendation. Currently, the Internet segment contributes 9.3% and 11.9% to the total revenue of SingTel and StarHub in FY2008 while M1 is a new player in the Internet market. We have reduced the revenue estimates for the Internet segment for SingTel and StarHub slightly from FY2010F onwards to reflect the lower retail prices. We have also increased the revenue estimate for the Internet segment for M1 from FY2010F onwards to reflect the likelihood of it gaining new subscribers. Nevertheless, as the revenue from Internet business constitutes only a small portion of the total revenue of the three telecommunications operators, there is no impact on our ratings and fair values for SingTel, StarHub and M1.
SingTel – BT
SingTel eyes online SME sales growth
Telco sees new Net store as another prong to reach SMEs
BULLISH on online sales, Singapore Telecommunications is set to ramp up its newest Internet shopping foray by offering more products and services through this sales channel, with an increased focus on small and medium-sized enterprises (SMEs).
In an interview following the launch of Business SingTelShop last week, the telco’s vice-president of business sales, Dumas Chin, told BizIT that ‘broadband, mobile applications and a range of business solutions’ will soon be sold through this store, which targets SMEs.
‘We are exploring the feasibility of offering solutions such as the SingTel HRAssist hosted HR (Human Resource) solution, and also our desktop security solution,’ said Mr Chin.
‘We expect more SMEs to make their purchases through this online store. We want to cater to the evolving buying preferences of our customers, who are increasingly becoming Web-savvy. The Business SingTelshop was launched to serve the rapidly growing number of SMEs that are turning to the Internet for their communications needs, information and transactions.’
Telco rivals MobileOne and StarHub have also been selling products and services to their customers over the Internet.
Both telcos operate longstanding e-shops which are primarily aimed at consumers and individual shoppers.
StarHub, however, could join SingTel on its new online SME sales turf.
A StarHub spokesman last week told BizIT that the telco is seeing more local businesses embracing online shopping and is now mulling the feasibility of setting up an Internet store that, like SingTel’s e-shop, caters to the SME.
But for now the momentum is with SingTel. Flagged off last Monday, Business SingTelShop was created to be a one-stop online mall for SMEs in Singapore, who can search, browse and purchase – using their credit cards – mobile devices and services that are for use locally.
Fresh impetus
The foray adds to SingTel’s existing SME sales channels, which include telephone hotline services and sales outlets.
And it adds fresh impetus to the telco’s online sales momentum, adding a new prong alongside SingTel’s consumer-focused e-shop, which was launched late last year.
This is the first time SingTel is selling to its business customers directly over the Internet.
Mr Chin declined to be specific about sales expectations that SingTel has set for Business SingTelShop at this early stage. He said that SingTel ‘hopes to learn more about the online preferences and purchasing behaviour of our SME customers’.
In the past few months, SingTel has ratcheted up its efforts to woo SMEs. Last December, it rolled out a $99-per-month managed human resource management package called SingTel HR Assist. This hosted package lets SMEs manage employee data, payroll and staff leave online.
Last month, the telco launched a range of subscription-based infocomm technology (ICT) packages dubbed ‘Smart Packages’, which includes communications and IT services like telephony, mobile services, broadband, e-mail, Web hosting, desktop security, data back-up and others.
Mr Chin is confident SMEs will embrace shopping online, not least because it will be a cheaper way to shop, as ‘transactions performed online require significantly less paperwork and manpower – resulting in substantial cost savings’.
To entice SMEs to shop online, SingTel will be coming up with ‘best deals’ that specifically targets online SME shoppers, including special offers not available at other sales outlets, he added.