Author: tfwee
SingPost – OCBC
Resilience is the word
Results in line with expectations. Singapore Post (SingPost) reported creditable results amid a challenging environment, with revenue increasing 1.6% YoY to S$124.0m and net profit declining marginally by 0.5% to S$36.7m in 3Q09. This is in line with our expectations as both YTD revenue and net profit comprised 75% of our FY09 estimates. Revenue grew in all three business segments, with retail enjoying 5.5% growth, followed by logistics at 2.1% and mail at 1.5%. Rental and property-related income grew by 34% due to higher rental income from the Singapore Post Centre (SPC) and contributions from leasing of space at re-purposed post office
buildings.
Slowing economy, but there are things to cheer about too. The slowing global and domestic economy will undeniably impact SingPost’s financials, and indeed the group’s 3Q08 selling expenses rose by 43.5% YoY as higher provisions were made for doubtful debts. However, several measures unveiled by the recent Budget such as the Jobs Credit Scheme, reduction in corporate tax and property tax rebates will benefit SingPost as well. We are also seeing very proactive measures by the group to counter the downturn, such as greater cost containment, new services to spur revenue, as well as continued measures to re-purpose post offices.
Cost management is the key. The group stepped up on cost management measures in the last quarter, such that all categories of costs except selling expenses moderated in growth. Labour and related expenses grew by 4.9% YoY compared to 7.2% in 2Q09 as SingPost kept a lid on temporary and contract labour costs, which is expected to moderate in the coming quarters. Tighter cost control in other areas such as promotional and marketing activities also resulted in lower expenses.
Maintain BUY. The slowing global and domestic economy is probably the main concern for most stocks, including SingPost, but the defensive nature of the group’s business means it will outperform the rest in a deteriorating and uncertain environment. Having taken into consideration weaker economic conditions and factors cushioning the decline in the group’s financials, we are maintaining our estimates and therefore keep our fair value estimate of S$0.93. As such, we maintain our BUY recommendation for SingPost. A quarterly dividend of S$0.0125 per share will be paid, sticking to SingPost’s dividend policy of minimum S$0.05 per share a year, implying at least a 6.5% yield.
SingPost – CIMB
Lacking catalysts for now
• In line. 3Q09 core earnings of S$36.6m (-0.5% yoy) were in line with consensus and our estimates, accounting for 24% of our full-year estimate. Revenue grew 1.6% yoy to S$124.0m. 3Q09 dividend of 1.25 cts/share met our forecast.
• 3Q09 sales up 1.6% yoy, driven by mail (+1.9%), logistics (7.2%) and retail (+11.5%). As expected, overall revenue growth was weak due to the poor economic environment. Mail revenue grew on higher volumes and increased hybrid mail contributions. Logistics revenue growth was attributed to higher warehousing, fulfilment, distribution and shipping revenue, offset by lower Speedpost revenue. SingPost continued to focus on controlling operating expenses, in particular labourrelated expenses.
• Well-positioned to defend its position. While the liberalisation of the basic mail service market in Apr 07 has increased competition, we believe SingPost is still in a strong position to defend its position as the leading postal service company. SingPost continues to hold a monopoly over stamp issues and is the only postal service company with the master-door key to all letterboxes in private apartments and HDB estates. Long term, we believe that liberalisation would have a limited impact on SingPost as the group still benefits from a much stronger brand name and an entrenched retail network, compared with the four other entrants.
• Cutting earnings by 1-7%. We have cut our FY09-11 earnings to reflect the impact of the slowing economy on business mail, express mail and retail revenue.
• Downgrade to Neutral from Outperform; lower DDM-derived target price of S$0.88 (previously S$0.94). SingPost’s share price has risen more than 18% since our upgrade last quarter. We believe that the positives have been reflected in the share price. Re-rating catalysts could include regional growth opportunities and a bigger share of the express mail market, which is still dominated by the international players. Its share price is likely to be supported by its defensive business model.
SingTel – DBS
SingTel more expensive than Bharti?
Story: We expect SingTel to report underlying net profit of S$835m (down 10% y-o-y, up 4% q-o-q) on 10th of February, which could be slightly lower than consensus estimates. In our view, tax savings rather than associate growth would drive the sequential growth. In 2Q09, SingTel paid $33m in tax on dividends from associates but in 3Q09F there are no dividends to be recognized from associates.
Point: We want to highlight three key points about SingTel.
Lower sequential contribution from associates. Weaker Indian rupee (down 3% q-o-q) and Indonesian rupiah (down 10% qo- q) are expected to impact earnings contributions from Bharti and Telkomsel. We do not expect Telkomsel’s contribution to recover yet as it benefited from S$22m oneoff tax adjustments in 2Q09, which would be absent in 3Q09F.
Higher sequential contribution from Singapore and Australia. 3Q09F would benefit from lower iPhone subsidy compared to 2Q09. However, Optus contribution would be impacted by weak Aussie dollar (down 20% q-o-q).
SingTel trading at premium to Bharti is unsustainable. Currently SingTel trades at 13.1x PER and 7.3x EV/EBITDA for FY10 compared to 12.5x PER and 7.0x EV/EBITDA for Bharti with 15% FY09-FY12 earnings CAGR. We believe either Bharti has to rise or SingTel has to decline for SingTel to look reasonable vis-à-vis Bharti, which is the only growth driver in SingTel’s portfolio. SingTel’s dividend yield of 4.5% is not compelling either. Regional telecom sector average under our coverage is 12.1x PER and 4.8x EV/EBITDA, implying SingTel is not cheap on valuation grounds.
Relevance: We fine-tuned our FY09 and FY10 estimates which are 3% and 6% below consensus estimates respectively. Maintain FULLY VALUED, with revised SOTP-based target price of S$2.52. Key risks are (i) Weak performance of Telkomsel, Warid and Globe as disposable income is impacted in their countries (ii) cut in corporate spending in Singapore where SingTel has majority market share (iii) Exchange rate risks (iv) Potentially higher capex in Australia, implying shortterm funding issues (v) lower growth for Bharti, if Rcom continues with aggressive pricing on GSM network.
ComfortDelgro – BT
ComfortDelGro to push out taxi rebates early
It expects savings to total $4.6m or $306 per taxi per year
TAXI companies have decided to pass the Budget road tax rebates on to drivers – and one operator even plans do it four months early.
ComfortDelGro, the dominant player with about two-thirds of Singapore’s 24,000 taxis, yesterday said that it will pass the savings on to drivers from March – instead of July.
It also said that it will spread the cash rebates over a shorter period of six months.
One of the Budget measures announced on Jan 22 was a 30 per cent road tax rebate for taxis for one year from July 1, 2009. The move will save cab companies $7 million.
In addition, operators will be granted a waiver of the special tax on diesel-powered taxis that are not hired out between March 1, 2009 and Feb 28, 2010. The annual special tax for taxis is a flat $5,100 and is paid on top of road tax.
ComfortDelGro expects the savings from the rebates, which it will receive from the government over a 12-month period from July, to total about $4.6 million, or $306 per taxi per year.
But instead of giving drivers $25.50 a month over 12 months from July, ComfortDelGro will give them $51 a month cash over six months from March, to provide ‘faster relief during these difficult times’.
This is the second year that the company has passed all road tax savings on to its drivers. Last year, it passed $2.7 million of rebates on to them.
SMRT, the second-biggest player here, also said yesterday that it will pass the latest rebates on to its drivers in full. ‘We have yet to determine how this can be done. Details will be announced later,’ a spokeswoman said.
Unlike ComfortDelGro, SMRT’s taxi division has not been profitable for some time. In the third quarter ended Dec 31, 2008, it suffered an operating loss of $226,000 due to a lower average hired-out fleet.
At Premier Taxis, similar sentiments were echoed regarding the rebates. ‘Definitely, we will return them to drivers but we haven’t decided when and how to do it,’ said managing director Lim Chong Boo.
SingTel – BT
SingTel pumps US$75m into Warid
Its shareholding in its Pakistani unit will remain at 30%
SINGAPORE Telecommunications (SingTel) has given Warid Telecom an additional capital injection of US$75 million to take its total investment in the Pakistani operator to US$833 million.
The latest capital boost came from the subscription to SingTel’s entitlement of 174.89 million Warid shares for US$75 million in cash.
Warid is expected to use this amount to fund the expansion of its domestic cellular network.
SingTel said the transaction will not have a material impact on its performance for the financial year ending March 31.
The operator bought its 30 per cent stake in Warid in 2007 for US$758 million as part of its strategy to branch into under-developed telecommunications markets around the world.
Warid is currently Pakistan’s third-largest mobile operator with a market share of around 18.8 per cent.
Despite its capital injection, SingTel’s shareholding in its Pakistani unit will stay at 30 per cent as Warid’s other shareholder, the Abu Dhabi Group, has also raised its stake significantly.
According to a Warid statement released on Wednesday, its two shareholders had recently pumped a total of US$250 million in equity into the firm.
Warid had suffered a wider-than-expected pre-tax loss of S$41 million for the three months ended Sept 30, 2008. Its underperformance, coupled with plunging regional currencies, dragged SingTel’s second-quarter net profit to a three-year quarterly low of S$868 million.
SingTel derives nearly 60 per cent of its earnings from overseas through wholly owned Australian operator Optus, along with regional associates Warid, Bharti Telecom, Telkomsel, Globe Telecom, Pacific Bangladesh Telecom and AIS.
While its foreign ventures have been the bane of its recent financial performance, some industry watchers believe the tide is finally turning in SingTel’s favour. The company’s share price has rallied as a result, rising 7 per cent in the past week to close at S$2.76 yesterday.
‘A collection of emerging market telcos, SingTel should benefit from a recovery in the currencies under which its key overseas units operate and receding aversion towards this asset class,’ CIMB said in a recent research note.
‘Also, the worst of competition in Indonesia appears to be behind Telkomsel. Bharti continues to gain market share,’ the research firm added.
SingTel will release its third-quarter results on Feb 10.