Author: tfwee
SingTel – BT
Telkomsel considering bond sale this year
PT Telekomunikasi Selular, Indonesia’s biggest mobile-phone operator, is considering selling bonds this year to fund spending, an official at parent company PT Telekomunikasi Indonesia said yesterday.
Telkom, as the parent company is known, plans capital spending of US$2 billion this year, 70 per cent of which will be used to expand its cellular business, Telkom president director Rinaldi Firmansyah told reporters here.
‘If market conditions improve, the bonds will be an alternative to fund the capital expenditure,’ Mr Firmansyah said. He didn’t provide the size and timing of the bond sale.
Telkom this month agreed to borrow about 5 trillion rupiah (S$647 million) from a group of banks including PT Bank Rakyat Indonesia and PT Bank Negara Indonesia, Mr Firmansyah said on March 2. The company aims to attract more subscribers to raise revenue by as much as 10 per cent this year, he said.
Telkomsel, 35 per cent owned by Singapore Telecommunications Ltd, had 65.3 million subscribers on Dec 31, 2008, up 36 per cent from 2007, the company said on Feb 12. Telkom shares climbed 3.5 per cent to 7,350 rupiah yesterday, outpacing a 3.4 per cent increase in the benchmark Jakarta Composite Index. — Bloomberg
Yield Stocks – BT
Analysts expect cuts amid pressure on corporate earnings
LAST year’s dividend yields among many Singapore stocks rose to their highest levels in five years due to the plunge in stock prices – but analysts expect yields to come down this year.
The increase was broad-based, with almost all of the 30 stocks in the Straits Times Index reporting sharply higher yields in FY08 based on the last traded prices for their fiscal years.
For example, Neptune Orient Lines (NOL)’s dividend yield was 12.5 per cent, up sharply from 2.05 per cent in 2007 and 1.91 per cent in 2006, while Sembcorp Industries yielded 6.47 per cent, versus 2.22 per cent a year earlier.
Singapore Airlines returned 8.88 per cent, compared with 3.17 per cent previously, while CapitaMall Trust delivered 8.09 per cent – up from 4.11 per cent in FY07 and 3.51 per cent in FY06.
The picture is similar for non-index stocks. For example, most mid-caps raised their dividend yields.
Guocoland yielded 7.02 per cent in 2008, up from 3.09 per cent in FY06 and 1.42 per cent in 2007. And Hotel Properties yielded 4.46 per cent, up from 0.61 per cent in 2007 and 0.93 per cent in 2006.
The spike in yields came about mainly because of the plunge in stock prices, as equity markets were hammered by the financial and economic slowdown.
Last Friday, the Straits Times Index closed at 1,596.92 points – down from 2,824.91 points a year ago.
But yields are likely to be pared this year as companies cut back on cash payouts amid uncertain economic conditions.
For example, DMG reckons 77 per cent of the stocks that it covers will post lower yields, falling from an average of 6.6 per cent in 2008 to 5.4 per cent this year.
OCBC Investment Research (OIR) head Carmen Lee reckons that companies will seek to preserve cash ‘as visibility on a credit thaw and the final verdict on global financial institutions have yet to crystallise’. OIR had earlier forecast an average yield of 7 per cent for STI component socks.
Also, scrip dividend programmes may become more common as companies use them to shore up cash, said Terence Wong of DMG & Partners. Stocks that have already done so include OCBC, Midas, Raffles Education and Keppel Land.
The less-than-rosy forecast came as a number of high-yielding stocks slashed payouts last year. ‘ComfortDelgro, for example, only dished out 52 per cent of its earnings – a far cry from the 80-plus per cent payout in previous years. Others, like Keppel Corp, SembCorp Industries and SembCorp Marine, have also reduced their distribution to shareholders.’
DMG believes that dividend payout ratios this year will be similar to those in 2008 across most industries, given that many companies cut them last year. But ‘what will take the wind out of the yields will be declining earnings per share, as we expect the market to fall some 14 per cent’.
Sectors that will see severe cuts in yields include real estate investment trusts (Reits) and finance, it says. By DMG’s estimates, yields on Reits could fall 3.4 percentage points, while finance sector returns could drop 2.9 percentage points.
For the banks, DMG expects DBS to slash its dividend payout from 64 per cent last year. Accordingly, dividend yield is forecast to drop to 3.9 per cent from 9 per cent.
The yield on OCBC may drop from 6.6 per cent to 4.2 per cent, while UOB may slash its payout to give a yield of 5.4 per cent, down from 6.6 per cent.
As for Reits, the research house does not rule out the possibility of ‘downside pressures to DPU in the near-term’.
‘As such, we recommend investors to buy into the big-cap Reits, for example, A-Reit and CMT, as a considerable amount of their FY09 distributable income has already been locked in.’
Other sectors that will see weaker yields include multi-industry (minus 1.7 percentage points), offshore and marine (minus 0.9 percentage points) and healthcare (minus 0.4 percentage points).
OCBC thinks cyclical sectors such as property, commodities, tech and, oil and gas may have difficulty maintaining payouts, as cash flow will be affected if earnings fail to hold up.
The research house recommends investing in blue chips ‘as these have largely maintained the stance of paying dividends as long as cash flow is strong and if cash is not required for major acquisitions’.
Singpost – DBS
Singpost may lower its annual dividends to 5 cents per share, which is below consensus expectations of 6 cents, to (i) conserve cash to upgrade or replace its processing
machine in 2013-14, and (ii) refinance its corporate bonds that will mature in 2013. Singpost has outperformed STI by 9.6% year to date. Downgrade to HOLD with target price of
S$0.82 based on 6% target yield.
Additional S$100m-S$150m capex.
Singpost had installed its mail-processing system in 1997-98, with a 15-year depreciation cycle. Bought for about S$100m, the system will reach its lifespan in 2013-14 and would need to be upgraded or replaced. Including customization efforts, we estimate additional capex of S$100m-S$150m, depending on the machine condition. Regular annual capex averages S$10m.
Refinancing of bonds in 2013.
Singpost’s S$300m corporate bonds that pay interest rate of about 3% will mature in 2013. While Singpost has AA- credit rating, a notch better than A+ at the time of issuing the bonds, it is prudent to back up the bond issue with more cash in hand.
Need to prepare for the future.
Our analysis indicates that SingPost can comfortably fund its capex requirements by reducing dividend per share to 5 cents. It is expected to generate about S$150m free cash flow every year, out of which S$100m could be paid out as dividends, and S$50m retained for future commitments. By 2013, it would have generated an additional S$200m from operations.
Downgrade to HOLD with reduced S$0.82 target price.
Our revised target price is based on 6% target yield, in line with its average historical yield trend. At the current price, Singpost offers 6.5% dividend yield annually, which is still better than the market’s 5% yield.
SingTel – BT
SingTel injects US$25m more into associate
Total investment in PBTL now stands at US$143m; stake unchanged at 45%
SINGAPORE Telecommunications (SingTel) has pumped in another US$25 million into Pacific Bangladesh Telecom Limited (PBTL) to take its total investment in this overseas associate to US$143 million.
The latest boost came from the subscription by SingTel for its pro-rata entitlement of about 1.07 million PBTL shares.
PBTL is expected to use the additional capital to fund its domestic network expansion.
Despite the latest injection, SingTel’s stake in PBTL will remain unchanged at 45 per cent as the Bangladeshi operator’s other major shareholders have also subscribed to their respective share allotments.
PBTL is a member of the Pacific Group – one of the largest privately-owned business conglomerates in Bangladesh and a major shareholder of Arab Bangladesh Bank. Its other major stakeholders include Pacific Motors Limited, Pacific Traders Limited, Pacific Industries Limited and Far East Telecom.
SingTel said in a statement yesterday the PBTL transaction, carried out through its wholly owned subsidiary SingTel Asia Pacific Investment, will not have a material impact on its financial year ending March 31.
Singapore’s largest operator bought its initial PBTL stake in 2005 for US$118 million as part of its strategy to branch into emerging regional markets.
SingTel now derives nearly 60 per cent of its earnings from overseas through its Australian unit Optus and its six regional associates – PBTL, Warid Telecom in Pakistan, India’s Bharti Telecom, Indonesia’s Telkomsel, Globe Telecom in the Philippines, as well as AIS in Thailand.
While it is keen to add more names to this list, the onset of the global economic crunch may have slowed the group’s acquisition spree. The operator’s last overseas foray was in June 2007 when it bought a 30 per cent stake in Pakistani operator Warid for US$758 million.
SingTel’s group CEO Chua Sock Koong previously said SingTel was not in ‘a big rush to make acquisitions’ amid the uncertain global outlook. However, she said SingTel was constantly looking for opportunities to raise its stakes in current associates.
Besides PBTL, SingTel also raised its investment in Warid recently by US$75 million by subscribing to 174.89 million more shares in the company.
Yield Stocks – BT
Dividend payouts likely to fall in ’09: UBS analysts
They say ‘slash & burn’ across the board is unlikely, sound positive note about banks
DIVIDEND payouts are declining in Singapore but deep cuts in payouts across the board are not likely, said UBS Investment Research.
‘We expect selected sectors and stocks to substantially cut dividends, but overall a ‘slash & burn’ in dividends across the board appear unlikely,’ said the firm in a March 13 report.
The firm said that property stocks and loss-making companies are where investors should have least confidence on dividend forecasts.
By contrast, ‘staples’ such as Singapore Post, (SingPost) StarHub, MobileOne (M1) and SMRT are stocks where confidence should be highest.
UBS also noted that for the offshore-related stocks, special dividends run the risk of being fully eliminated in 2009.
‘This is especially so as management is looking out for acquisition opportunities as the cycle deteriorates,’ noted analysts Tan Min Lan and Ling Vey Sern.
In addition, they said that for some stocks with high projected payout ratios (Singapore Technologies Engineering, Singapore Exchange, Venture Corp and Singapore Airlines) the obvious risk lies with potential earnings per share (EPS) disappointment.
The research report also identified Singapore Press Holdings (SPH) as having the biggest risk of cutting payout (to a dividend yield of about 8 per cent) among the ‘yield stalwarts’.
UBS also warned that for the real estate investment trust (Reit) sector here, the timing and size of potential fund raisings remain a risk to dividend yield forecasts.
However, the firm’s analysts also sounded a positive note about companies in one sector here – banks. ‘Banks have articulated a desire to signal their financial strength by largely maintaining payout,’ UBS noted, adding that a 4-6 per cent dividend yield range looks sustainable for the sector.
To assess dividend sustainability, UBS analysed earnings risks, compared free cashflow (FCF) yields to estimated dividend yields, and calculated what the estimated 2009 dividend yields would be if payouts were cut to the lowest level since 2001.
Meanwhile, for stocks with outstanding corporate bonds, the firm compared the respective dividend yield and bond yield.
‘Our view is that the recently concluded reporting season provides good insights into management intentions regarding future dividend decisions,’ the note concluded.
For example, in the recently concluded fourth quarter 2008 earnings reporting season, companies that suspended final dividends because of quarterly losses included Hong Leong Finance and Parkway Holdings.
And companies that eliminated or significantly cut ‘special dividends’ included CapitaLand, City Developments, Keppel Corp, Sembcorp Industries, Sembcorp Marine and ComfortDelGro.
Other companies, such as NOL and CDL Hospitality Trusts, revised stated dividend policies.
However, some other firms gave their investors reasons to be hopeful.
Companies that reiterated their commitments to a payout ratio include ST Engineering (100 per cent), CapitaMall Trust (100 per cent), CapitaCommercial Trust (100 per cent), SingPost (80-90 per cent, subject to a minimum of five cents), M1 (80 per cent), OCBC (45 per cent) and UOB (40-60 per cent).
And there were also companies with no stated payout ratio, but where the management communicated a strong intention to maintain or largely maintain the dividend per unit or payout.
These included SMRT, StarHub, DBS, Venture Corp and Parkway Holdings.