Author: tfwee
SPH
SPH reports first quarter net profit of $73m
Profit recognised from the Sky@eleven development cushioned reduced profits from the print media. -SPH
Jan 12, 2009
Singapore Press Holdings Limited (SPH) today reported its results for the first quarter ended 30 November 2008. Recurring profit increased 1.0% to $127.8 million, as profit recognised from the Sky@eleven development cushioned reduced profits from the print media business. Following the global financial market meltdown during the quarter, the Group’s investment portfolio was marked down to market levels, resulting in a loss of $33.7 million. Net profit consequently decreased by 34.8% to $73.0 million from $111.9 million in the corresponding quarter last year.
Group operating revenue was 9.0% or $28.2 million above that of the corresponding quarter last year. Revenue for the Newspaper and Magazine segment, impacted by the sharp downturn in the economy, decreased $11.9 million or 4.6%. Led by the fall in recruitment advertisements, print ad sales declined by 7.3% to $188.2 million. Revenue for the Property segment rose 86.3% to $81.1 million, with Sky@eleven and Paragon contributing $34.6 million and $2.7 million respectively to the increase.
Total operating expenses increased by $26.6 million or 14.1% to $215.2 million. Property development costs of $14.4 million for Sky@eleven, recognised on percentage-of-completion basis, were higher by $9.7 million. Newsprint costs increased $6.3 million or 21.3%, while staff costs decreased $1.7 million or 2.1% as a result of lower variable bonus provision. Depreciation and other operating expenses were up $2.1 million (14.2%) and $9.5 million (23.0%) respectively, in tandem with the Group?s upgrade of its printing presses and expansion of business activities.
Commenting on the outlook for FY2009, Mr Alan Chan, Chief Executive Officer of SPH, said: “The economic downturn is expected to last for several quarters and this will continue to impact the Group’s advertising revenue. We have taken measures to enhance revenue and contain costs, and will proactively implement further cost and efficiency initiatives. Our property segment is expected to contribute significantly to the Group’s recurring earnings with profits from Sky@eleven and Paragon. Barring unforeseen circumstances, the Directors expect the recurring earnings for the current financial year to be satisfactory.”
SPH – JPMorgan
1Q09 result preview – eyes on the top lines
• 1Q09 results preview: eyes on the top lines: SPH will announce its 1Q09 result on 12 Jan 09; our revised estimates for 1Q09 will be about S$100MM, subject to some swings from property development profit and investment income. Key things that we will watch for in the results include: 1) a potentially higher-than-expected newsprint charge-out price given SPH locked in the cost 6 months back during the peak, and 2) the magnitude of decline in revenue from core business, although we believe that 1Q09 revenue for the core business could be the highest of the year.
• Operating leverage could magnify the decline in revenue: We estimate that more than 75% of SPH’s cost base is fixed, putting the group at a disadvantage given the operating leverage. We estimate that for every 10% drop in newspaper and magazine revenue, the group’s earnings from core publishing business would decline by about 19%. The lagging growth trend in newsprint price (by about 2 quarters) could also worsen the operating conditions for SPH, in 1H09 in particular.
• Revising our earnings estimates downward: We revise our earnings estimates down by 9% and 11% for FY09E and FY10E on the back of lower revenue from newspaper and magazine. We also revise our dividend forecast down to S$0.22/share for both FY09E and FY10E from S$0.27/sh in 2008. Historically, amidst the recession in 2001 SPH has cut its special dividend payout, and we believe a cut this year is possible.
• We reduce our Dec-09 price target to S$3.90, based on our SOTP valuation, and we maintain our OW rating. Key risks to our rating and price target include 1) lower than expected revenue from the core business, 2) lower than expected income from investment, and 3) a sudden drop in rental rate for Paragon.
SingTel – DB
Ten things to watch in 2009
2009 should be busy for STel; 10 key issues to focus on
We believe 2009 will be a busy year for STel as it is involved in the S’pore NBN NetCo build, bids for the Australian broadband network, competes for the S’pore EPL rights, deepens its Associate relationships and potentially uses reduced telco valuations to expand internationally. In this note, therefore, we detail the ten issues we will be watching in 2009. We maintain Buy for the TP upside and STel’s increasingly defensive nature (reduced Sing/Australia valuation & NAV discount).
2009 events in Australia & S’pore should focus on NBNs, costs & the EPL
Australia and S’pore 2009 themes are likely to be dominated by the national broadband projects. Information on both projects currently remains scarce and as more details are released throughout 2009, estimates and sentiment may be impacted. In addition, both operations will focus on cost control (watch headcount as the most visible indicator of this), while NCS expansion in S’pore is likely to significantly dilute margins. Finally, we expect STel to increase content acquisition and to bid aggressively for the English Premier League TV rights in 3Q09.
And internationally, in 2009 watch the Assoc relationships, PBTL and M&A
We will be watching the strength of STel’s existing Associate relationships in 2009, which we expect STel to deepen – this may involve a strengthening of the Bridge Alliance. In terms of STel’s portfolio, attempts will be made to re-invigorate PBTL through broadband wireless, while 2009 may be the year that the SingPost asset is finally disposed and the Taiwan interest exited. Finally, if STel is serious about international expansion, 2009 is likely to be active given recent valuation declines but as such, investors should not expect any accelerated returns.
Still attractive given TP upside, NAV discount and Sing/Au valuation; Buy
Our S$3.23 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. Given current valuations, the NAV discount and the reduced Sing/Australia fwd PE we recommend Buy. Risks to our view and Buy rating include adverse FX trends, increasing market competition and an emerging market sell-off.
StarHub – DBS
Good entry price for yield play
StarHub is a safe yield play in a relatively benign competitive and regulatory environment. Higher cost of sports content might affect its bottom-line in FY10F, but it should not be excessive and has been included in our below consensus estimates. Upgrade to BUY for 13% share price upside and 8% dividend yield.
Stable FY09F earnings despite economic slowdown. It is reasonable to expect lower roaming revenues as Singapore’s tourist arrivals drop. But rising data revenue following offers of unlimited data plans should offset the weakness to a large extent. FY09F will also benefit from the absence of S$6-7m Euro Cup content costs incurred in FY08 and easing competition in the postpaid mobile space.
Least worried about dividends. Management claimed it had sufficient unutilized and committed credit facilities from local banks to meet (i) refinancing needs for the next twelve months, and (ii) capex requirements for OpCo, in case StarHub wins the award. Management believes it can continue to pay average dividend payout of 65-70% of free cash flow, implying upside to our 8.4% yield projection.
PCCW case suggests StarHub might secure EPL again. In our view, PCCW in Hong Kong had secured key channels such as Star TV, HBO, etc., and built a respectable subscriber base before aggressively going after EPL. This is not the case with SingTel, which has a small subscriber base (around 50K) for mio TV with many popular channels still held by StarHub. We estimate the EPL bid price in 2006 was S$40-50m higher than that in 2003, and the magnitude of increase should be comparable in the 2H09 EPL bid, whose impact on the bottom-line will be visible only in 4QFY10.
Upgrade to BUY, S$2.08 target price unchanged. This is pegged to 12x FY09F PER, or 20% premium to our 10x PER target for M1 due to (i) StarHub’s better track record, (ii) no cash tax till FY09F, resulting in 12.5% free cash flow yield and providing sufficient cushion for 8.5% dividend yield.
SFI – BT
Food firms under SATS umbrella to reap big gains
An SFI-Country Foods entity seen as a sizeable regional player
AN integrated pan-Asian food giant with a footprint stretching from India, through South-east Asia and into China.
That is the vision of Frankie Tan, founder and CEO of Country Foods, the frozen food subsidiary of Singapore Airport Terminal Services (SATS)
Country Foods was set up in 1989 by Mr Tan as a processed food and sauce maker.
After a decade of strong growth, the company caught the eye of SATS, which paid about $6 million for a 66.7 per cent stake in 2002.
Realising the market potential of frozen food, especially in the low-cost airline segment, SATS bought the other 33.3 per cent of Country Foods for another $5.6 million last year, making it a wholly owned subsidiary.
‘By 2000, we had reached the stage where we needed to scale up for further expansion,’ said Mr Tan, who is a minority shareholder of SATS. ‘SATS gave us that scale and exposure.’
Country Foods seems to have been somewhat of an appetiser for SATS, which six years later has moved to acquire the much larger listed Singapore Food Industries (SFI).
BT understands that SATS looked at SFI in 2001 but decided to go after the smaller Country Foods first.
The decision seems to have paid off.
Today, Country Foods, with revenue of more than $30 million, is one of the fastest-growing suppliers of frozen and processed food in Singapore.
Besides fast-food outlets such as McDonald’s, Pizza Hut, 7-Eleven and Burger King, its customers include hospitals and several hospitality industry players.
Its Macau unit dominates the frozen and processed food market for staff eateries and food outlets in the territory’s casinos. Plans are already underway to expand into Hong Kong.
Mr Tan envisages similar opportunities at Singapore’s two integrated resorts, which will employ some 20,000 people.
Meanwhile, Country Foods is already in talks to supply frozen meals to budget carriers including Tiger Airways, Cebu Pacific and Jetstar.
It already provides in-flight meals and frozen deserts to several Asian and Middle Eastern full-service carriers.
‘In Europe, virtually all the airlines serve frozen and chilled food on board,’ Mr Tan said. ‘But the concept is still in its infancy in Asia, largely because catering costs are still relatively low here.’
But with costs, quality and consistency of supply (or food security) becoming hot-button issues not just for airlines, but other businesses too, Mr Tan sees huge growth in Asia.
And this is where SFI comes into the picture.
‘SFI is a huge player, especially in logistics, procurement and mass volume catering,’ he said.
‘It also has a presence in other markets. We see huge synergies in teaming up with it under the SATS umbrella. There will be big economies of scale from the combined operations. And we will have the critical size to provide end-to-end support to customers.’
SATS has moved to buy Temasek Holdings’ 69.6 per cent of listed SFI at 93 cents per share.
And with a general offer a certainty, the total purchase price will be $509 million.
SATS reckons SFI will make it a world-class group powered by the twin engines of airport and food services, lessening its exposure to the vagaries of the aviation market.
Mr Tan sees an integrated SFI-Country Foods entity as a sizeable regional player with a footprint stretching from South Asia, through South-east Asia and into North-east Asia.
Indeed, the numbers seem to point in that direction.
The Singapore in-flight catering market is worth about $500 million, of which SATS controls 80 per cent or $400 million.
With the takeover of SFI, SATS food business will immediately grow by $700 million. Then there is Country Foods, whose revenue is more than $30 million.
Looking ahead, new growth will come from the expansion of the frozen and chilled food segment, said Mr Tan.
‘The food business is relatively stable,’ he said. ‘Because barriers to entry are low, it is a competitive business. But if you have the size and technology, you will have the economies of scale to dominate the market.’
And that is exactly what SATS seems intent on doing with the takeover of SFI.