SMRT – DBSV
Free pre-peak morning MRT rides
- Free travel on MRT trains for those who exit at 16 city stations before 7.45am on weekdays
- Government to fund this 1-year trial, starting 24 Jun 13
- No immediate impact on SMRT and CD
- Maintain FULLY VALUED on SMRT on operational challenges; BUY CD for geographical exposure
Free travel on MRT trains on weekday mornings.
Singapore’s Land Transport Authority (LTA) announced this morning that it will embark on a one-year trial starting from 24 Jun 13 to provide free travel on the rail network for commuters who end their journey before 7.45am on weekdays at 16 designated MRT stations in the city area. In addition, commuters who exit these 16 stations between 7.45am to 8am will be given a discount of up to 50 cents off their train fare. The government will be funding this trial.
The objective of this trial is to encourage commuters to make changes to their travel schedule into the city area to spread out the morning peak hour crowds.
What are the changes from the current scheme?
Currently, a 50 cents discount is given for commuters who exit at 14 city stations before 7.45am from Mondays to Fridays (excluding public holidays). Refer to table below for a summary of changes.
Our views:
No immediate impact on SMRT and CD. As the trial will be funded by the government, (said to cost S$10m according to The Straits Times), we do not foresee any direct impact on SMRT or CD at this juncture arising from the provision of free travel and discounts during the aforementioned timings. However, it is expected that train trips will be increased during this period to shorten waiting times, and therefore should increase operating costs marginally.
On a positive note, this may alter travel patterns, relief pressure on peak hour travel and may also improve overall public transport ridership.
M1 – Phillip
Positive on continued Data monetizing
Company Overview
M1 is the 3rd largest Telecommunications company in Singapore. The introduction of NGNBN in Singapore lowered entry barriers to the Fixed Line business, which would allow M1 to venture into the corporate and retail
broadband market.
- 1.7% y-y increase in Net Income, Service revenue healthy with 4.1% y-y growth
- Positive on 11% of re-contracting customers upgrading to higher tiered postpaid plans
- Maintain Neutral, with new TP of S$2.58.
What is the news?
M1 reported 1.7% y-y increase in Net profits. Similar to the previous quarter, service revenue was positive. Y-y increases in revenue contribution from Mobile telecommunication services and Fixed services were also
registered. International call service revenue was however down on lower roaming and International calling card usage. Expenses remain well managed. Net income was above expectations due to lower cost of services. Management guided for moderate growth in FY2013 net profit after tax.
How do we view this?
We are positive on management’s guidance of further data monetizing. While postpaid customers continue to exceed their data allowances, management also guided that 11% of re-contracting customers have upgraded to higher tiered postpaid plan. We continue to expect further data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management guides for high capital expenditure requirements in FY2014-FY2015. Coupled with the upcoming spectrum auction, we think that there is limited potential for M1 to increase dividend yield in the near term.
Investment Actions?
We adjust our figures to reflect 1Q13 earnings, and lower cost. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.0% continues to remain attractive at current prices. However, we expect limited upside capital gains, due to previous share price rally and lower earnings growth. We maintain our “Neutral” rating, with a new TP of S$2.58.
M1 – MayBank Kim Eng
Maximum Warp, Mr Data. Up to BUY
Upgrade to BUY. We recommend a switch to M1 from SingTel and StarHub. Dividend yield of 5% is decent but that is not the main reason to buy the stock. Instead, the relative underperformance of the stock this year vs. peers provides a chance to get in early on potential earnings upside from the adoption of 4G, which we believe will happen faster and sooner than expected in 2013. Already, the early numbers in the 1Q13 results are encouraging. We upgrade M1 to BUY with a DCF-derived target price of SGD3.55, the top end of consensus.
Tiered plan price hike to kick in this year. The SGD3/mth price hike since Sep 2012 when M1 switched from unlimited to tiered plans should have benefit postpaid ARPUs in FY13. M1 now charges SGD39/mth for 2GB of data, up from SGD36/mth for its previous 12GB plan. Previously, it had been the cheapest; now it is on par, befitting its superior 4G coverage. The number of postpaid subscribers that exceeded their data bundles has also doubled QoQ, which is a strong sign of a positive data monetisation trend.
Monetisation should kick in sooner than later. We believe M1 will benefit faster and sooner than expected from the higher data traffic and ARPU uplift that will come from (1) 4G adoption and (2) richer mobile content. In our view, 4G adoption will take place faster than 3G for the obvious reason that nobody can do without their smart devices anymore. Compared to 2009 when 3G first came into the picture, smartphones are now universally available (even 4G) and mobile content is a lot more richer and compelling.
M1 data biz already doing better than peers. M1’s mobile revenue growth has picked up steadily in 2012 on the back of its outperforming non-voice revenue, bucking the downward or flat trend of the other two operators. Given that this has been done without any significant increase in overall market share or ARPU, we believe that this could be due to M1 gaining market share in the 4G base, especially since the steepest jump in mobile revenue occurred in 4Q12, the quarter after it introduced 4G plans.
In-line with expectations. 1Q13 results (NPAT +1.8%/+8.8% YoY/QoQ to SGD41m) showed great promise for 2013 to be a good year. Service revenue rose 4% YoY, the fastest growth since 2010, on the back of good growth in both mobile and fibre businesses. The number of 4G customers on tiered plans jumped from 43k in 4Q12, its launch quarter, to 223k in 1Q13, just about 1% of its total postpaid subscribers but we expect rapid growth ahead in 2013 as M1 has the advantages of full island-wide coverage and a superior network.
SPH – DBSV
REIT expectations provide support
- 2Q13 lower than expectations, dragged by weak ad revenue
- 7 Scts interim DPS declared; maintaining our DPS estimate of 24 Scts for the full year
- Evaluation of a property REIT still in progress and is likely to underpin share price
- Maintain BUY, S$4.75 TP
Highlights
2Q13 down on weak ads revenue. 1Q13 Singapore advance GDP estimates released on the morning of 12 Apr was a good reflection of SPH 2Q results. SPH’s 2Q13 net profit dropped by 15% y-o-y to S$71.5m, while revenue slipped by 5.5% to S$282.2m, weaker than our expectations. Interim DPS of 7 Scts was declared, similar to 1H12. We continue to expect full year DPS of 24 Scts, equating to a yield of 5.2%.
Ads impacted by cooling measures, property rental remains robust. Newspaper & magazines’ revenue fell by 7.1% y-o-y to S$224.4m due to weaker advertising revenue. Display ads fell by 10.2% while classifieds fell 7.1%, which was attributed to the property and transport sectors arising from the various government cooling measures introduced. Property rental remained robust, up by 4.5% to S$50.2m.
Evaluation for the proposed REIT still in progress, mandate not signed. Contrary to media reports, management shared that no mandate has been signed yet. The assessment for a property REIT was still ongoing, and announcements would be made going forward when there are significant developments. We continue to believe current market conditions are conducive for SPH to spin its investment properties into a REIT.
Our View
Share price supported by asset realisation, yield. We are not particularly surprised by the weak 2Q results, given the uncertain economic outlook. That said, we believe share price in the near term may face resistance and some profit taking after appreciating about 10% in the past month. But, downside should be limited, and likely to be supported by the expectation of an eventual REIT listing.
Ad revenue may pick up slightly with the economy in 2H. Our economist expects to see a slower first half, followed by a pickup in the second half for the Singapore economy. With ad revenues historically tied to economic growth and consumer sentiment, this could point to a pick up for SPH ad revenues.
Recommendation
Maintain BUY, S$4.75 TP. Maintain BUY as we believe share price should continue to remain firm on expectations of the potential REIT and will re-rate once there are positive developments going forward. We trimmed our FY13F earnings slightly by 3.4%, on the back of weaker ad revenue in 2Q. Our sum-of-parts TP is adjusted marginally to S$4.75.
SPH – CIMB
Tread carefully
We think it is still unclear if spinning off its prized property assets into a REIT creates shareholder value. This, coupled with the weak ad environment, suggests that the recent 10% run-up in the share price may be overly optimistic.
2QFY13’s earnings came in below expectations at 19% of our and consensus full-year estimates due to weaker-than-expected ad revenue. 1H13 formed 44%. We lower FY13-15 estimates by 5-9% but raise our SOP-based target price to reflect the appraised value of properties likely to be spun off into a REIT. Downgrade from Neutral to Underperform as we think the recent share price gains are unwarranted.
Weaker ad revenues drag down 2Q12
2Q’s ad revenues suffered as a consequence of the government’s cooling measure on both the car and property sectors. We think this situation is unlikely to change for the rest of the year. Property continued to do well, with Paragon registering a 5% increase in rentals. Both malls are 100% occupied.
REIT may not create value
We think it is unclear if there will be a special dividend. That depends on how much management decides to sell down. If management sells a large stake to the REIT, it will take away valuable property earnings when the media earnings are struggling. On the other hand, if SPH sells only a small stake, there might not be special dividends, and investors who bought in anticipation could be disappointed.
Optimistic share price
Our revised SOTP already capture Paragon (S$2.43bn) and Clementi Mall (S$598m) at SPH’s announced valuations. We estimate that these valuations are based on fairly aggressive cap rates of 4% when CMT and FCT’s retail malls are mostly valued at cap rates above 5%. A divestment into a REIT might not add more to our SOTP. Meanwhile, share price had re-rated well above our target price.