Author: tfwee
Land Transport – AmFraser
4Q09: Improved ridership momentum
• Total rail ridership grew 4% YoY in 2009, boosted by better 6% YoY growth in 4Q09. 4Q was the highest quarter in 2009, enjoying 177.2 million rides by commuters. In contrast, 3Q was the peak quarter – with 169.4 million rides – in 2008. In total, commuters took 676.8 million rail trips in 2009.
• MRT ridership fared a better 4% YoY growth in 2009 against 3% YoY growth in LRT ridership. LRT ridership accounts for an insignificant 4.9% of total ridership. Four MRT lines – North-South Line (NSL), East-West Line (EWL), North-East Line (NEL) and partially-opened Circle Line (CCL) enjoyed a combined 643.8 million trips by commuters. Three LRT lines – Bukit Pangjang, Sengkang and Ponggol – saw 33 million trips for the year.
• For 2009, ComfortDelGro’s (CD) rail ridership fared better than SMRT, despite reverse in 4Q09. Through 75.3%-owned Singapore Bus Service Transit (SBST), CD’s only MRT line (NEL) and two feeder LRT lines (Sengkang and Ponggol) to NEL, saw a combined 6% YoY growth to 135.6 million trips in 2009. LRT accounts for 12% of this. In 4Q09, CD’s rail ridership grew 5% YoY to 35.7 million.
• Pick up in momentum for 4Q09 at SMRT pulls rail ridership growth to 4% YoY for 2009. SMRT saw a combined 137.3 million rides on its three MRT lines in 4Q09, representing 6% YoY growth, higher than the 2-3% YoY growth in the earlier quarters.
• Overall, incremental benefits from new Circle Line has not flowed through in 2009. Despite opening of a new MRT line since May 2009, 4% YoY growth in rail ridership for 2009 was much lower than the 12% YoY growth for 2008. As only one out of five stages of CCL is in operation so far, and CCL is more of a connecting line (an orbital line) to improve travel times and convenience, we believe more incremental benefits will flow through in the longer term from luring more commuters to take public transport when later stages of CCL are progressively opened. At the same time, while a slower economy dampened rail rides to some extent in 2009, a continued growth (+0.3% YoY) in car population also had an impact.
• In public scheduled bus services, CD’s dominant bus operations continued to fare poorer than SMRT’s in 4Q09. Overall bus ridership fell 1% YoY in 2009 to 1,115.5 million trips. SBST saw an improved flat 4Q09 over year ago which helped bring its full year to a 2% YoY fall to 827.9 million rides. SMRT also saw an improved 1% YoY growth in 4Q09, which helped bring full calendar year to a flat performance over 2008.
• On balance, ridership numbers released till December 2009, bodes better for CD. While CD’s bus ridership for FY2009 is a fall from 2008, this came in 1% higher than our forecast. At the same time, CD’s rail ridership came in 0.4% below our FY2009 forecast. Singapore bus accounts for a larger 20% of CD’s revenues, while rail accounts for a smaller 4%.
• SMRT’s 3QFY10 (YE March) reported MRT ridership of 137.3 million is 1% lower than our estimate. But on upside, bus ridership totalling 71.7 million (Dec 2009 estimated) is 2% above what we had factored in. However, the net effect is on the downside as MRT operations contribute 54% to revenues while bus accounts for 22%.
• Preview: Modest cut to SMRT’s FY10 estimates possible – but would not likely have drastic impact on rating. SMRT reports 3QFY10 (March) results 27 January after trading hours. CD reports FY09 (Dec) on 10 February. We reckon minor adjustments on ridership revision per se, could represent a 2% downward bias to SMRT’s fFY10 (March) earnings.
• Positive note for SMRT, we will start to see maiden contributions from Shenzhen ZONA Transportation Group in 3QFY10. The acquisition of ZONA – its first overseas foray in public transport services – was completed on 30 October 2009. While early contributions is insignificant in the near-term, SMRT expects this to be material within five years.
• CD still presents 15% upside to fair value of S$1.89 – maintain BUY rating. SMRT has appreciated 9% on our buy rating since our last report on 2 November 2009. Our current rating pends our results review report.
SMRT – BT
More Circle Line stations to open in April
ELEVEN more Circle Line (CCL) stations will begin operations on April 17, Transport Minister Raymond Lim announced yesterday.
These stations, from Dhoby Ghaut to Bartley, are part of the 10.8 kilometre long second phase of the new 33.3 km MRT line. The stations – Tai Seng, MacPherson, Paya Lebar, Dakota, Mountbatten, Stadium, Nicoll Highway, Promenade, Esplanade, Bras Basah and Dhoby Ghaut – will join the five stations from Bartley to Marymount, which were opened on May 28 last year.
About 200,000 people are expected to use the 16 stations – from Dhoby Ghaut to Marymount every day.
‘This is a significant milestone in the expansion of our rail network,’ said Mr Lim, explaining that the direct connection provided by the CCL will cut down travelling time for commuters.
For example, those travelling from Simei to Bishan currently take 46 minutes to travel by MRT. With the CCL, it will require 31 minutes, or a 33 per cent time savings.
The CCL is an orbital line that links to existing train lines to reduce travelling times to suburban areas by bypassing the city centre. When the $6.7 billion line is fully completed, up to 500,000 people are expected to use it daily.
Passengers travelling from the eastern parts of Singapore can use the new Paya Lebar Interchange Station to bypass the busy City Hall and Raffles Place interchanges to get to the city and northern parts of Singapore. Those travelling from the north and north-east commuting to the city and the east will also benefit from the CCL.
Mr Lim added that the rest of the 29 CCL stations will open in 2011. He said that opening the CCL in phases is not cost-effective, but it is good from a commuter perspective.
Earlier, he had visited the award-winning Stadium CCL Station, which is designed to accommodate large crowds from the nearby facilities, before travelling three stops north to Paya Lebar Station
The Paya Lebar Station connects to the East-West Line and is the first interchange station to integrate above-ground and underground lines.
Commuter connectivity between the new CCL station and the East-West Line station is helped by two wide passageways.
Mr Lim noted that the stations paid ‘a lot of attention to detail’ and cited the artwork on the wall, which reflects the history of the surrounding area. In the Paya Lebar Station’s case, there are illustrations of pigs because of the pig farms that used to be located there.
He also thanked those living in the areas along the CCL for putting up with the inconvenience during the construction of the line.
SingTel – CIMB
Weak 3Q Bharti results
Bharti’s 3QFY10 results
Maintain Underperform. SingTel’s Indian associate, Bharti, turned in relatively weak 3QFY10 results although the results fell in line with consensus forecast (75% of full year). Our numbers are based on consensus. 3Q was marked by a rather tepid topline, weak MOUs, high churns and lower margins due to intense price competition. While Bharti expects competition to stabilise in 2H10, we are less sanguine and believe the competitive phase will persist throughout the most part of 2010. We retain our earnings forecasts, sum-of-the-parts target price of S$3.30 and UNDERPEFORM rating on SingTel pending SingTel’s results release on 9 Feb. We are concerned about competition in India and Australia, 3G spectrum bidding in India, and an inability to recover the cost of BPL rights. Switch to M1 or Axiata.
Effect of price war telling. Bharti turned in a rather weak performance even after factoring in recent security issues when it lost over 25% subscribers who could not be re-authenticated and the prepaid ban in Jammu & Kashmir (J&K) where it has a 35% market share. 3QFY10 core net profit slipped 13% qoq and 14% yoy, on the back of a revenue drop of 1% qoq but 1% yoy growth. This was due to the effects of savage price cuts and partly due to the J&K ban despite seasonal strength. These factors also resulted in a 2.1%-pt qoq decline in EBITDA margins.
Wireless metrics affected. The intense competition had manifested itself in the wireless business which fell 2% qoq, despite a healthy 8% qoq rise in net adds to more than 8m. ARPUs fell 9% qoq, while MOU declined 1% (would have been flat if not for the J&K ban), leading to a steep 8% fall in average revenue per minute (ARPM) to Rs0.52 in 3Q.
2H10 to be better? Bharti sees a more stable environment in 2H10 with hypercompetitiveness culminating in the launches of several new players in the next 5-6 months and as new entrants begin to realise the non-viability of their business models following losses over 2-4 quarters. We anticipate the start-up of three telcos in the coming months. During this period, Bharti will focus on increasing its subscriber and revenue market share and stabilising its margins.
We are less sanguine and believe that the competitive phase will prevail throughout most of 2010 as the new entrants would have a long term view, backed by strong parents. Hyper competition in Bangladesh, Indonesia, Pakistan and Sri Lanka took 12-18 months to play out, based on our observation. In India, the intense competition was sparked off in Sep 09. On the positive side, any relaxation in M&A norms would accelerate the consolidation process, we believe.
Elasticity to recover? Bharti presented a more upbeat picture on elasticity, noting that it had arrested the erosion in its MOU and that not all of the elasticity had been reflected as it was still in the process of migrating its customers to new pricing plans.
Bangladesh, Sri Lanka and international acquisitions. Bharti is excited over its acquisition of a 70% stake in Warid Bangladesh as it sees this as a promising market with a low tele-density of 32% and a fairly large population of 160m. It is still formulating its strategy there but believes it has the potential to capture market leadership in the next few years. In Sri Lanka, Bharti has moved to the fourth slot from the fifth after one quarter of operation and now covers the southern and eastern parts of the country and will be present almost everywhere soon. Bharti remains committed to its international aspirations, particularly as it has completed its South Asian footprint. It has formed a dedicated business to pursue opportunities in emerging markets, for the next phase of growth.
Valuation and recommendation
Maintaining earnings forecasts, target price and UNDERPERFORM rating. We make no changes to our forecasts, sum-of-the-parts target price of S$3.30 and UNDERPERFORM rating pending SingTel’s results release on 9 Feb. We see potential de-rating catalysts from rising competition in India and Australia, an upcoming 3G spectrum auction in India which should be hotly contested, and an inability to recover the high cost of BPL.
Switch to M1 (Outperform, TP: S$2.07) which is our top Singapore telco pick for its capital-management potential or Axiata (Outperform, TP: RM3.86) for its fast-growing regional telco exposure.
SingTel – DBS
Bharti does not disappoint!
• Bharti’s 3QFY10 earnings slightly ahead of consensus due to healthy growth in network traffic.
• Upside potential for Bharti’s FY11F street estimates, if industry consolidation kicks in another 2-3
quarters
• Maintain HOLD for SingTel due to (i) National Broadband National (NBN) related concerns in
Singapore and (ii) potential pay TV losses in Singapore.
Bharti numbers slightly better than consensus. Bharti’s 3QFY10 net profit of INR 22.1bn as per US GAAP (-4% qoq, +2% yoy) was better than street expectations of INR 21.6bn. EBITDA stood at INR 39.1bn (-5% qoq, -3 yoy), due to slightly weaker contribution from the mobile business. Mobile ARPU at INR 230 was down 9% qoq, offset to a large extent by traffic growth of 7% qoq, highest in the last five quarters. This could be attributed to stable minutes of usage (MoUs) per subscriber, which had been declining for quite some due to more rural subscribers.
Management expects consolidation in another 2-3 quarters. Bharti’s management expects industry consolidation in another 2-3 quarters as initial excitement over cheaper price plans fades out and smaller players realize that their business models are unsustainable. Consensus has assumed continued price wars with 5% yoy decline in Bharti’s earnings in FY11F. In our view, there could be potential upside to consensus estimates, if sector consolidation starts to kick in.
Maintain HOLD with TP of S$3.15. We retain our forecasts for Bharti, but have lowered our forecasts for Singapore business due to NBN related concerns and pay TV related losses. As such, our FY10F/11F earnings for SingTel are trimmed down by 1%/2%.
SingTel – BT
Bharti profit rises as price cuts boost wireless use
BHARTI Airtel reported a quarterly profit that beat analysts’ estimates after price cuts helped India’s largest mobile-phone operator boost traffic on its wireless network.
Net income increased 2.3 per cent to 22.1 billion rupees (S$674 million) for the three months ended Dec 31, from 21.6 billion rupees a year earlier, New Delhi-based Bharti said yesterday. That compared with the 21.9 billion-rupee median of 16 analyst estimates compiled by Bloomberg. Sales rose 1.5 per cent.
Billionaire chairman Sunil Mittal’s flagship company slashed call rates to as little as 0.01 rupee a second to keep customers after overseas carriers NTT DoCoMo Inc and Telenor ASA entered the market with cut-price plans. The reduced prices encouraged users to spend more time talking on Bharti’s network.
‘Most people had been more pessimistic than (the) results warrant,’ said G V Giri, an analyst with IIFL Capital Ltd in Mumbai. The earnings reflect ‘lower tariff translating into correspondingly increased traffic,’ he said.
The Indian operator reported that traffic on its mobile network increased in the last quarter by 9.56 billion minutes from the preceding three-month period to 153.2 billion minutes. The number of wireless customers grew 40 per cent from a year earlier to 120.2 million as on Dec 31, Bharti said in the statement.
‘The resurgence of minutes has been a highlight of this quarter,’ chief executive officer Manoj Kohli said in a post-earnings briefing in New Delhi yesterday. ‘This is despite the hyper-competition,’ he said.
Phone companies are reducing prices to get a larger share of a wireless market that is on average adding more than 14 million subscribers every month and is forecast by researcher Gartner Inc to exceed 771 million users by 2013. India had 506 million mobile-phone accounts at the end of November, according to data from the Telecom Regulatory Authority of India, second only to China’s market in size.
The increased competition, at a time when growth in the telecom industry is slowing, is leading to overcapacity, Kotak Securities Ltd, ranked India’s top local brokerage by Asiamoney last year, said this month.
Third-quarter revenue was 97.7 billion rupees, compared with analysts’ median estimate of 97.6 billion rupees.
Bharti is now targeting emerging markets as competition intensifies and growth slows in India’s cities. The operator on Jan 13 named Mr Kohli to head a new team to acquire companies outside the region after it made its first overseas acquisition in Bangladesh earlier this month.
The Indian carrier announced on Jan 12 that it agreed to buy a 70 per cent stake in Bangladesh’s Warid Telecom and will invest US$300 million in the neighbouring South Asian nation’s fourth-largest mobile-phone operator. Bharti last year failed to conclude a US$23 billion purchase of South Africa’s MTN Group Ltd in its second attempt.
Bharti will focus on emerging markets and has no plans to acquire companies in the US, Mr Kohli said yesterday. Competition will ease after a couple of quarters and India’s wireless market will see more stable and orderly growth in the second half of the year, he said.
‘With the pricing regime stabilising, the operators will get back to a more normal environment and Bharti will benefit from its scale in terms of operating performance,’ Theo Maas, who owns Bharti shareholder Singapore Telecommunications Ltd as part of the US$4.5 billion in assets he manages at Fortis Investment Partners Pty in Sydney, said. — Bloomberg