Author: tfwee
SPH – DBS
Time to buy the daily
Upgrade to Buy. P/B at 1.8x is at lowest point in the last 20 years. Previous lowest P/B was 1.95x, in 1998. Wage cuts savings will mitigate fall in ad revenues. We believe SPH’s share price (-30% since Jan’09) has already factored in the weaker economic outlook. Dividend yield is attractive at >8%. TP: S$2.93 reflects a potential c.34% total returns upside.
Wage cuts savings… SPH will be cutting wages by 2%- 10% for 3,000 staff from 1 Apr. The savings from this and profit-related bonuses is an estimated 20% in wage bill for its core operations. Wages account for c.25% of revenue and c.40% of the Group’s costs. We view this as positive for the Group, to help mitigate fall in ad revenues.
Offsets drop in ad revenues. According to data from Nelsen Media Research, advertising revenues (AdEx) for the period from Sep’08 to Jan’09 fell by 10% y-o-y. In Jan, it fell by 25% y-o-y, deteriorating from a 14% y-o-y drop in Dec. We trimmed our ad revenue assumption and assumed a -20% yoy drop, from -15% previously. This offsets our estimated savings from the wage cuts.
Expect a weak 2Q. We expect SPH’s 2Q09 results to be weak on a c.20% fall in ad revenues, coupled with a high newsprint costs. However, we have taken this into account in our estimates. Current newsprint spot price is at c.US$680/mt versus our assumption of US$800 for FY09F.
Outlook priced in, lowest P/B in 20 years. We believe the current share price (-30% since Jan’09) has already priced in the weak economic outlook. Valuations are very attractive at 1.8x P/B with a dividend yield of >8%, based on our 20cents DPS assumption.
Upgrade to Buy. Our sum-of-parts derived target price is lowered to $2.93 (from $3.25) as we factor in lower RNAV for Paragon at S$1.69bn (based on a cap rate of 6%). We pegged our newspaper operations at 12x FY09F earnings, a premium to peers’ average, given SPH’s dominant position in Singapore. But, this is still lower than Star Publications’ PER of c.15x.
ComfortDelgro, SMRT – BT
ComfortDelgro, SMRT in STI; Yanlord, KepLand out
ComfortDelGro Corporation and SMRT Corporation will join the Straits Times Index (STI) in place of Yanlord Land Group and Keppel Land.
This was disclosed in a joint release by Singapore Press Holdings (SPH), Singapore Exchange Limited (SGX) and FTSE Group (FTSE) on Thursday after the half-yearly review of the STI and FTSE ST Index Series.
The change, along with others, will take effect from the start of trading on Monday, 23 March 2009, with the next review scheduled for Thursday, 10 September 2009.
SPH – BT
SPH cuts salaries up to 10%
Asian media giant Singapore Press Holdings (SPH) said on Thursday it will cut monthly staff salaries by between 2 and 10 per cent to reduce costs as revenues fall.
The salary cuts, which will take effect next month, and lower profit-related bonuses will enable the company to trim its wage bill by 20 per cent, SPH said in a statement.
The wage cuts will affect about 3,000 staff, with higher paid employees bearing the brunt of the reductions, it said. SPH added that it would freeze hiring and cut operating expenses, without giving details.
‘We need to bring our costs down in the face of a weaker advertising market and uncertain business environment,’ said SPH chief executive Alan Chan.
‘It is imperative that we prepare for a longer than expected downturn so that we can emerge stronger when the economy recovers.’
Profit-related bonuses will also be slashed, with senior management expected to see a reduction of about 30 per cent in their total annual remuneration, the company said.
SPH has seen its income affected by the global economic downturn with net profit in the first quarter to November falling 34.8 per cent to $73 million (US$47 million). — AFP
TELCOs – OCBC
Stable 2009 outlook
Resilient 4Q CY08 earnings as expected. All the three telcos – MobileOne, SingTel and StarHub – reported a pretty resilient set of results recently. M1’s 4Q08 results, though slightly weaker YoY and QoQ, were slightly better than expected, aided by an improvement in EBITDA as it had been less aggressive during the traditionally competitive holiday period. SingTel’s 3Q09 results were broadly in line with our forecasts, although there was some disappointment with its regional associates’ performances. Likewise for StarHub, its 4Q08 results were also within our expectations, while its FY08 earnings were slightly better than our estimate.
Operationally still going strong. But more importantly, all three telcos expect their operations to remain stable in 2009. For M1, it is also looking to keep its service EBITDA margin of 43-44% and maintain its 80% dividend payout ratio. For SingTel, it expects operating revenues for both Singapore (excluding SCS) and Australia to grow at mid single-digit levels, with Singapore’s EBITDA margin staying at 40%; but warns of lower associate contributions and adverse forex movements. Lastly, StarHub expects FY09 operating revenue to grow by low single-digit, while keeping service EBITDA margin at 31%; more importantly, it aims to continue to pay S$0.045/share dividend quarterly, making for S$0.18 total for the full year.
More rational competition amid slowing economy. But the rapidly slowing economy will continue to impact consumer spending, and while we do not expect the telcos to be spared, we believe that the impact should be relatively limited as we see telecom services as being a need rather than as a luxury. We also expect less aggressive sales & promotion (S&P) expenses. We have already been seeing an easing in the telcos’ acquisition costs over the past two quarters and we see this trend continuing although M1 may have to maintain a relatively higher S&P ratio versus the other two telcos to make up for its lack of bundling abilities. Otherwise, we expect the telcos to maintain status quo.
Maintain Overweight on telcos. Even though we are penciling in modest declines in both revenue and earnings for all three telcos this year, these declines pale in comparison to expected tumble in earnings of companies reliant on discretionary spending. Hence we still expect telcos to show relative outperformance this year, backed by their attractive dividends (M1 and StarHub). As such, we maintain Overweight on the sector.
SingPost – BT
In the post – UOB’s foray into heartland home loans
Bank ties up with SingPost to sell HDB loans and challenge rivals on their turf
In a surprise move, United Overseas Bank (UOB) has tied-up exclusively with SingPost to sell HDB home loans, muscling its way into mass market mortgages that have so far been dominated by rivals DBS Group Holdings and OCBC Bank.
UOB which has previously targeted private property buyers and the affluent yesterday said it has forged a strategic alliance with SingPost to distribute UOB HDB Home Loans.
The bank will initially start with four SingPost outlets and plan to have up to 24 post office branches by the end of the year to sell HDB homes loans. SingPost has 52 branches all over the island.
‘The latest move extends UOB’s HDB home loans’ distribution network beyond its 57 branches,’ UOB and SingPost said in a joint statement.
The exclusive arrangement is for more than 5 years, said Claudia Lim, SingPost corporate communications manager.
SingPost dedicated staff trained by UOB will be selling the HDB home loans, said Ms Lim.
Eddie Khoo, UOB’s executive vice-president for personal financial services, said the latest initiative ‘is really about bringing convenience to customers by extending the bank’s distribution network beyond the walls of our own branches to reach customers’.
‘At the macro level, and in the longer term, we see this as a strategic investment as this additional channel enables us to serve our customers better through convenience and accessibility.’
The surprise move will likely spark off a fierce tussle with rivals DBS and OCBC who may seek to protect their turf. Both banks claim to be the market leader. DBS said it has captured HDB buyers through its POSB customers while OCBC has focused on HDB mortgages from the time the government liberalised the market in Jan 2003.
‘POSB is the market leader in HDB home loans,’ said a DBS spokeswoman. The bank has 53 POSB branches.
‘We were also the first in the market to introduce POSB Home Ideal First for first-time homeowners, offering them a 7-day return policy which allows them to assess if the home loan is suitable for their needs,’ she said.
Gregory Chan, OCBC head of secured lending, said the bank’s team of mobile home loan specialists visit potential customers who are too busy to come to its branches, to explain details of home loan packages and to process applications.
‘At the same time, we work with property agents from the largest property firms in Singapore who are in direct contact with home buyers and help market our home loans. This business model has served us well and we continue to be the top player in the HDB home loan market,’ said Mr Chan.
Mass market home loans are just about the safest products as Singapore enters its worst recession ever because the prices of HDB homes did not surge wildly during the property bubble. And now, they are not skidding sharply.
In contrast, the prices of some high-end properties have crashed as much as 50 per cent from the peak reached last year. A Citigroup report in January said that, in the high-end segment, properties have seen price corrections of about 35 per cent from a year ago and they could fall by another 30-40 per cent this year.
David Conner, OCBC chief executive, said last month while announcing the bank’s 2008 results that negative equity for its property portfolio was low because of the bank’s focus on HDB home loans.
He also noted that HDB mortgages are for owner occupation and the loan quantums are small.
‘A big part of our portfolio is HDB – prices have not gone up as much – and we do not anticipate a big fall,’ he said.
OCBC’s home loan book negative equity was 0.7 per cent while 81 per cent of homes for which it has made loans are owner-occupied.