Author: tfwee
SMRT – BT
SMRT Q3 profit rises 7.6% to $41.2m
SMRT Corp continued to roll ahead of the general corporate doom and gloom by announcing a 7.6 per cent year-on-year rise in net profit to $41.2 million for its third quarter ended Dec 31, 2008.
Group revenue in Q3 rose 8.4 per cent to $219 million, driven largely by higher train and bus ridership, as well as the rental and advertising business. But total operating expenses grew 9.8 per cent to $174.8 million because of increases in staff and energy costs, and other operating expenses.
Electricity and diesel costs had risen 35.1 per cent to $30.2 million in the third quarter. Q3 diesel prices have tapered off compared with the first two quarters but are still higher against the same period the year before.
Staff and related costs increased 4.2 per cent to $67.5 million because SMRT has been ramping up recruitment for the Circle Line since Q1. The new MRT line will become operational in the middle of this year. SMRT operates Singapore’s biggest rail network, along with a smaller fleet of buses and taxis.
Average daily train ridership grew 8.4 per cent, boosting Q3 train operations revenue by 9.1 per cent to $119.7 million. Operating profits rose 6.3 per cent to $35.1 million.
Revenue from bus operations also improved by 6.3 per cent to $51.3 million on higher ridership too. But an operating loss of $1.2 million was recorded due to the increase in staff, and repair and maintenance costs.
A lower average hired-out fleet hurt taxi operations, with rental revenue declining 10.3 per cent to $17.4 million, and an operating loss of $226,000.
But engineering and other services saw revenue rise 17.9 per cent to $7.9 million in Q3, thanks to higher consultancy revenue from the Palm Jumeirah monorail project in Dubai. Operating profit grew to $1.1 million from $0.4 million in the previous corresponding quarter.
Earnings per share in Q3 rose from 2.5 cents to 2.7 cents year on year.
For the first nine months ended Dec 31, 2008, SMRT’s net profit rose 7.2 per cent to $124.1 million. Year-to-date revenue was 11.5 per cent higher at $662 million. Earnings per share for the first nine months rose from 7.6 cents to 8.2 cents.
Looking ahead, SMRT said revenue from train and bus operations is expected to be higher in the fourth quarter compared with the previous corresponding period, due mainly to ridership growth. But the rate of growth will be lower than the first three quarters.
SMRT may also cut fares because of the difficult economic conditions. Yesterday, it and the dominant bus operator SBS Transit (SBST) announced that they would not be applying to the Public Transport Council for a fare revision this year
SBST, which also runs the North-east MRT Line and two LRTs, said it is ‘looking to pass the savings it will receive from the 2009 Singapore Budget to commuters’. Under the current fare adjustment formula, the maximum fare increase would be 5 per cent.
SMRT will also pass on the Budget savings to commuters and taxi hirers, as well as donate an additional $300,000 to help needy commuters with their transport costs.
‘In addition to not applying for any fare increase this year, SMRT will work closely with the Public Transport Council to pass on savings from the Budget to commuters by reducing train and bus fares,’ said SMRT president and CEO Saw Phaik Hwa.
SMRT shares closed two cents lower at $1.59 yesterday.
SingTel – CIMB
Bharti’s 3QFY09 results
Bharti’s (SingTel’s 30.8% Indian associate) 9MFY09 results met our expectations but were ahead of consensus forecast. Core net profit of Rs68.9bn (+48% yoy) made up 74% of our full-year forecast but 82% of consensus. 3Q numbers were once again strong, characterised by: 1) admirable topline growth; 2) continued market-share gains; and 3) improving EBITDA margins.
Topline admirable. 3Q09 topline grew by 38% yoy and 7% qoq even in a highly competitive environment, led by remarkable subscriber growth of 55% yoy and 10% qoq. Bharti highlighted that its brand continued to hold sway and that the top-2 operators in India now command a larger revenue market share (in excess of 50%) in a 12-player market compared with a smaller revenue market share (of below 50%) when there were only 4-5 operators.
Market-share gains. As Bharti pushes deeper and wider into India, it is able to withstand the tide of competition, extending its market share to 24.7% (+0.1% pt qoq, +1.1% pts yoy). The Indian telco market is extremely resilient to economic challenges worldwide. Net adds have hit 10m per month, higher than the run rate of 9m subscribers per month only a few months ago.
Margins were firmer. EBITDA margins rose in 3Q09 to 41.0% from 37.7% in 2Q09 as 2Q was hit by a full quarter’s worth of increased carriage charges and higher diesel costs. Margins were helped by economies of scale on the back of the sheer volume of minutes carried on the network (1.4bn minutes per day), tighter cost control especially on non-network-related costs and greater productivity and operational efficiency.
3G services and WiMAX. At this stage, much of the timeline and process relating to 3G remains uncertain as the regulator irons out the timetable for auction given the tepid response from foreign operators, wrangling over the number of slots and fears that the government may not be able to fully maximise the revenue-generation potential from auctioning licences. Bharti has not disclosed its strategy for 3G for competitive reasons.
Sri Lanka launch. Bharti launched its service in Sri Lanka on 12 Jan using both 2G and 3.5G, becoming the fifth operator to do so. It sees potential in the market given that penetration rates are only at 50%. Sri Lanka has geographical and cultural proximity to India and Bharti can migrate its low-cost business model there. It has come up with a simplified and below-the-market tariff structure to gain an edge and response has been overwhelming. It believes that it will be able to match the coverage capacity of Dialog (which has 1,000 towers) in the next 6-8 months. It will be investing US$200m on capex over five years. That said, we see numerous challenges, including severe competition leading to margin compression, runaway inflation of 25% affecting mobile spending and escalating costs as well as lower elasticity of demand. Bharti would also have to unseat Dialog, the market leader with a 50% subscriber market share at end-3QCY08, which is rather tough given that it is coming from behind and starting as a greenfield operator.
Other updates. Towerco sustained its margins at 33.5% in 3Q (vs. 33.3% in 2Q) and benefited from lower diesel costs in 3Q. It will be transferring 35,000 towers from 1 Jan 09. It is looking to increase its tenancy ratios from the 1.34x in 3Q, up from 1.26x as at end-2Q. Apart from that, it has launched IPTV services, which have taken off rather well. Towerco deems this an integral part of any triple-play offering.
Valuation and recommendation
Unrivalled execution. While the market remains hyper-competitive, Bharti has been able to withstand the tide, executing well even as it extracts profits from first-time users in more rural areas in India. Subscriber momentum is unabated, led by its branding pull and it enjoys a huge competitive advantage from its economies of scale. We continue to view Bharti as one of the more reliable drivers of SingTel. We estimate that Bharti would constitute 24% to SingTel’s PBT.
Maintain OUTPERFORM, earnings forecasts and target price. Pending the release of SingTel’s 3QFY09 results on 10 Feb, we are maintaining our earnings forecasts and sum-of-the-parts target price of S$3.10. Bharti makes up about 37% of SingTel’s valuation. We reiterate OUTPERFORM on key re-rating catalysts of: 1) appreciating regional currencies; 2) further signs of easing competition in Singapore; 3) strong quarterly results, especially at key units; and 4) a bottoming out of earnings in 3QFY09.
SFI – BT
SATS shareholders okay SFI takover
General offer for all SFI shares triggered, lifting total bill to $509 million
MINORITY shareholders of Singapore Airport Terminal Services (SATS) have given their company the nod to buy a controlling stake in Singapore Food Industries (SFI) from Temasek Holdings.
Almost 70 per cent of minority votes cast at a meeting yesterday were in favour of SATS buying 359.7 million SFI ordinary shares equivalent to a 69.6 per cent stake. The offer price is 93 cents a share – a total of $334.5 million.
The move will trigger a general offer for all 157.1 million SFI shares, which could lift the total bill to $509 million. SATS chief executive Clement Woon said SFI shareholders will get the offer document within two weeks.
‘We only needed 50 per cent plus one vote to get this through, but what we got is overwhelming support,’ he said. ‘There is still a lot of work to do. We will move ahead with the general offer first, then start work on our integration plan.’
SATS’ controlling shareholder Singapore Airlines, with a stake of just over 80 per cent, abstained from yesterday’s vote, leaving minorities to decide.
SATS needs to secure at least 90 per cent of SFI’s shares to de-list the food company and 100 per cent for total control.
What if it does not get beyond 90 per cent? ‘We are not a financial investor,’ said Mr Woon. ‘We are in this for the synergy – to bring two companies together to create value for shareholders. Of course, we’d like a complete takeover.’ He declined to say how SFI, especially its leadership structure, will be restructured after the takeover. ‘We’ll work with the board and management when the time comes.’
SFI has appointed ANZ Singapore its independent financial adviser to counsel directors on the offer.
About 600 SATS minority shareholders voted on the takeover at a 9.30am meeting at the Hyatt Hotel yesterday. Those against the deal said the price is too high and the timing is bad.
At 93 cents a share, SATS is buying SFI at a historical price/earnings multiple of 15 times and a price/book ratio of 3.2 times. Also, the acquisition comes as the UK market – which accounts for more than two-thirds of SFI’s revenue – faces a nasty and drawn-out recession.
But according to Mr Woon, a premium must be paid for control. And as for timing, he said: ‘There is no better time. The probability of success of an acquisition is higher if it is done in a downturn.’
SATS believes that buying the region’s largest integrated food supplier will help it achieve sustainable growth powered by the twin engines of airport operations and food services. It also points out that SFI is a stable business with Singapore government contracts, such as supplying food to the armed forces, and access to the national food security programme.
Additionally, through SFI’s presence in Europe and the UK, SATS sees potential to expand into European airline catering. SFI’s UK business has been growing 14-19 per cent a year.
SingTel – DB
Taking stock: FX, the Sing/Au valuation & the NAV discount
FX trends will hurt 3Q09 results but Buy for increasing defensiveness
The S$ appreciation against STel’s component currencies towards end-2008 will drag on the forthcoming 3Q09 results and may impact near-term sentiment. But a stronger S$ is already in our FY09e estimates and more importantly, DB expects S$ weakening from current levels against most of STel’s key currencies which will be beneficial. Furthermore, STel trades at a >10% NAV discount and with Sing / Australia at 11-12x fwd PE, we view STel as increasingly defensive. Maintain Buy.
Recent FX trends will hurt STel’s 3Q09 results but FX outlook improving
Toward end-08 the S$ appreciated significantly against the A$, Indian rupee and Indonesian rupiah which will impair the forthcoming 3Q09 results. For example, we estimate the 3Q09 translation rates would have reduced 2Q09 non-S$ contributions by approx -10%. But FY09e FX rates are trending in-line with DBe and importantly, we expect near-term S$ weakening against STel’s key currencies which will be beneficial for earnings and valuation. As such, although FX will again be in focus ahead of the 3Q09 results, the FX outlook may in fact be improving.
And STel still attractive given reduced core valuation and NAV discount
Furthermore, with Sing/Australia currently valued at 11-12x fwd PE (significantly de-rated from 2008 highs), future STel price downside appears increasingly limited – we highlight the strong inverse correlation between the SG/AU fwd PE and subsequent STel price action. In addition, STel still trades at an NAV discount which also limits downside from current levels. As such, we view STel as increasingly defensive (unlike for much of 2008) and recommend Buy.
Maintain Buy despite 3Q09 FX trends with S$3.27 target price
Our S$3.27 SOTP TP is based on S’pore S$0.88/share (DCF: 7.1% WACC, 0% g), Optus S$0.78/share (DCF: 9.6% WACC, 1% g), DB covered listed Assocs at TP, non-DB covered listed Assocs at market value and investment value for others. We have (very) slightly increased our TP to S$3.27 from S$3.23 to reflect changes to DB’s FX forecasts (some S$ weakening expected). Risks to our Buy rating include adverse FX trends, competition and an emerging market sell-off.
M1 – OCBC
Stable Operations in 2009
4Q08 results mostly in line. MobileOne (M1) reported its 4Q08 results on Friday, with revenue down 5.9% YoY (down 1.0% QoQ) at S$194.7m, just slightly ahead of our S$190.6m forecast. While net profit fell 3.7% YoY to S$36.6m, it was up 6.1% QoQ and was also ahead of our S$33.6m forecast. One reason for the slightly better-than-expected sequential earnings was the improvement in EBITDA margin on service revenue from 41.6% in 3Q08 to 44.0%, as it had been less aggressive during the holiday period (EBITDA margin was 40.9% in 4Q07). According to management, this was because it had shifted its promotions to the 2nd and 3rd quarter following the launch of true mobile number portability in June 08.
For the full year, revenue was flat at S$800.6m, while net profit fell 12.6% to S$150.1m, both pretty close to our S$796.5m and S$147.1m estimates. However, the street may be slightly disappointed as consensus was looking at a net profit of S$153.1m on S$815.8m revenue. M1 declared a final dividend of S$0.072/share, bringing the total dividend to S$0.134 (versus S$0.108 for FY07), or 80% of its net profit as promised.
Stable operations expected. Although M1 is mindful of the current economic climate and the credit crunch, it believes that its operations should remain stable; service EBITDA margin will remain around 43-44%. It intends to spend around S$100-120m as capex this year. It also aims to maintain its payout ratio of 80%. However, we are a little less sanguine as we expect M1’s churn to remain high, hampered by its lack of bundling abilities. At such, we are sticking to our original forecast of 2.7% drop in revenue and a 4.1% drop in earnings; retention and acquisition costs may remain high as we believe M1 may need to work a little harder to retain customers versus its peers.
Maintain BUY with S$2.12 fair value. Meanwhile, the ongoing search for a new CEO may be another concern but we believe that there should be no change to its near- to medium-term strategy of M1 becoming a multiple-play operator via the NGNBN (Next-Gen National Broadband Network). And against the deepening economic backdrop, we still like M1 for its defensive and strong free cash flow-generating business. As such, we maintain BUY and S$2.12 fair value.