SingTel – CIMB
Investor Day takeaways
At its Investor Day, SingTel said it plans to list its investments in the digital space to unlock value. The growth driver across the group is mobile data via bundling of services in more developed markets while it is dependent on lower smartphone prices in emerging markets.
It wants to focus more on monetising pay TV subscribers in Singapore and less on acquisition. SingTel remains an Underperform with an SOP-based target price of S$3.23. Likely de-rating catalysts are earnings disappointment and regulatory developments in India.
Interest aplenty in Group Digital Life
Investor interest was strongest in Group Digital Life, which complements the group’s consumer offerings with digital services. SingTel’s investments in the digital space must have a competitive edge, the ability to leverage its existing assets and involve the core daily activities of customers. It is eyeing video, digital advertising, games, e-commerce and advanced communications. While it did not reveal how much it is setting aside for investments in digital, SingTel will detail this during its FY13 results announcement. It will also disclose milestones achieved by GDL and its targets. SingTel is prepared to list these investments on the stock market to unlock their value.
Group Consumer
At the Group Consumer level, SingTel is changing its business model in terms of: 1) customer experience, 2) monetisation and scientific marketing, 3) network, and 4) the introduction of Digital Life in Singapore and Australia. SingTel plans to extend these strategies to its associates. SingTel’s lack of management control over its associates and the disparate maturities of the markets in which SingTel’s associates operate are key challenges in driving these initiatives across the group, in our view.
Dialling up data
The growth driver across the group is mobile data as wallet share rises when users move up from 2G to 3G and to 4G. In Australia and Singapore, SingTel plans to: 1) offer digital services to stimulate data usage and encourage loyalty, and 2) bundle multiple services which lowers user churn. In emerging markets, the key to data usage is lower smartphone prices. Most of its associates say the sweet spot for greater smartphone uptake is US$100 or less.
SPH – DMG-OSK
REIT Listing Min. Impact to Valuations
SPH has announced a potential REIT listing for its property assets. The properties and terms to form the portfolio are still under review. A scenario in which Paragon and Clementi Mall form the REIT portfolio with a dividend yield of 5.5% by our estimates will have little impact to our SOTP TP. We are maintaining our NEUTRAL call, but raise our SOTP TP to SGD4.30 (from SGD3.80 previously). Our revised TP does not factor in a listing of its property assets into a REIT.
Positives of a REIT listing include cash inflow, asset value realization. The listing of SPH’s property assets (we assume Paragon and Clementi Mall) into a REIT has its positives: (1) potential gross cash inflow of SGD1.5bn (assuming SPH keeps 50% cash and remainder as REIT shares), (2) upside in gross asset value realization of SGD1.3bn (Paragon and Clementi are valued at SGD1.75bn on SPH’s books versus market value of SGD3.03bn), (3) higher income in the form of dividends as a REIT is tax exempt with a minimum earnings payout of 90%.
However we see a REIT listing to have little impact on our valuations. With the assumption of SPH receiving 50% of the asset value (of Paragon and Clementi) in cash, and the remainder as equity interest in the REIT (which trades at implied dividend yield of 5.5%), our SOTP TP would be unchanged at SGD4.30. Should the REIT trade at a lower 5.0% dividend yield, our SOTP TP would increase by 2.1% to SGD4.39.
Positive for investors given retail REITs current 4.5-5.0% yield. We assumed (1) a listing of Paragon and Clementi Mall, (2) 35% debt ratio, (3) NPI of SGD140m, (4) finance cost at 2% of debt to derive a dividend yield of 5.5%, which is more attractive than the current retail REIT sector’s 4.5-5.0%.
Maintain NEUTRAL, SOTP TP of SGD4.30. We have (1) increased our N&M segment P/E multiple by 25% to 13.8x (in line with peers), (2) revised our in house property segment valuation to that of market, and (3) updated value of stakes in list cos. Our SOTP TP has been lifted to SGD4.30 (from SGD3.80). Our TP does not factor in a REIT listing of SPH’s property assets.
SMRT – DMG
Downgrade To Sell On Wage Revision
SMRT has announced a progressive revision of its non-executive wage scale, excluding Bus Captains, from 1 March. Despite factoring in payouts via the Wage Credit Scheme, we are lowering our FY13 and FY14 earnings by 4.2% and 11.9% respectively. Downgrade to SELL (from NEUTRAL), with a lower TP of SGD1.43 (from SGD1.55 previously) based on DCF. This implies a FY14 P/E of 19.3x.
Full impact of wage revision partially offset by Wage Credit Scheme. SMRT’s wage revision mainly targets the non-executive staff, excluding Bus Captains. This exercise is estimated to account for c. 63% of SMRT’s 7,350 employees. It is anticipated that almost all of those employees who qualify for the wage revision would see their monthly revised pay move up to no more than SGD4,000, making them eligible for the Wage Credit Scheme, through which the government co-funds 40% of the wage increases from 2013 to 2015. Although we expect this Scheme to help mitigate the full impact of the increased staff cost, we are cutting our FY13/14 earnings by 4.2%/11.9%.
Revision aims at nurturing a better public transport system. SMRT views the wage revision as a step towards creating a more productive, motivated and efficient workforce, which will in turn give rise to a safe and reliable public transport system. This move follows a series of train breakdowns as well as a strike by the company’s bus drivers. Although we agree that a wage revision could incentivize staff and ultimately improve public transport service levels, we believe it would be challenging for SMRT to achieve this while keeping profits tight, especially amidst an environment where transport fares are not keeping pace with cost increases.
Downgrade to SELL. No light yet at the end of the tunnel. SMRT does not appear attractive, trading at a 21.8x FY14 (FYE Mar) P/E vs ComfortDelGro’s 15.8x FY13 P/E. Apart from a higher than expected fare revision following a fare formula review deferred until at least May 2013, we see little potential catalysts for a share price upside given the cost pressure concerns.
February 2013
Results announcement
- 5 Feb 13 : SIAEC (Q313) – EPS 6.08ct (todate 18.54ct)
- 7 Feb 13 : SBSTransit (Q412) – EPS 0.93ct (todate 6.01ct) ; Div 1.65ct (todate 3ct)
- 7 Feb 13 : StarHub (Q412) – EPS 5.12ct (todate 20.93ct) ; Div 5ct (todate 20ct)
- 8 Feb 13 : ComfortDelgro (Q412) – EPS 2.7ct (todate 11.89ct) ; Div 3.5ct (todate 6.4ct)
- 14 Feb 13 (AM) : SingTel (Q313) – EPS 5.19ct (todate 16.57ct)
- 15 Feb 13 : STEng (Q412) – EPS 4.93ct (todate 18.76ct) ; Div 4ct (Final) + 9.8ct (Special) (todate 16.8ct)
- 26 Feb 13 : HLFin (FY12) – EPS 17.6ct ; Div 8ct (todate 12ct)
STI = 3269.95 (+8.83)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
HL Fin |
FY12 (Dec) |
17.60 |
12.00 |
$2.730 |
4.396% |
15.51 |
Interim 4ct ; Final 8ct |
|
SingPost |
FY12 (Mar) |
7.407 |
6.25 |
$1.205 |
5.187% |
16.27 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY12 (Aug) |
23 |
24.0 |
$4.180 |
5.742% |
18.17 |
Interim 7ct ; Final 9ct + Special 8ct |
Aviation Services
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SATS |
FY12 (Mar) |
15.40 |
26.0 |
$2.940 |
8.844% |
19.09 |
Interim 5ct ; Final 6ct + Special 15ct |
|
SIA Engg |
FY12 (Mar) |
24.56 |
21.0 |
$4.910 |
4.277% |
19.99 |
Interim 6ct ; Final 15ct |
|
ST Engg |
FY12 (Dec) |
18.76 |
16.8 |
$4.250 |
3.953% |
22.65 |
Interim 3ct ; Final 4ct + Special 9.8ct |
Note : SATS Special Div is Observed to be Non-Recurring
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY12 (Dec) |
6.01 |
3.00 |
$1.510 |
1.987% |
25.12 |
Interim 1.35ct ; Final 1.65ct |
|
ComfortDelGro |
FY12 (Dec) |
11.89 |
6.40 |
$1.920 |
3.333% |
16.15 |
Interim 2.9ct ; Final 3.5ct |
|
SMRT |
FY12 (Mar) |
7.9 |
7.45 |
$1.610 |
4.627% |
20.38 |
Interim 1.75ct ; Final 5.7ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY12 (Mar) |
25.04 |
15.8 |
$3.440 |
4.593% |
13.74 |
Interim 6.8ct ; Final 9ct |
|
M1 |
FY12 (Dec) |
16.1 |
14.6 |
$2.800 |
5.214% |
17.39 |
Interim 6.6ct ; Final 6.3ct + Special 1.7ct |
|
StarHub |
FY12 (Dec) |
20.93 |
20 |
$4.190 |
4.773% |
20.02 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
1H – Sep12 |
A4.1 (Gross) |
$1.500 |
6.936% |
$1.300 |
1H13 A4.1ct ; 2H12 A4.0ct |
|
MIIF |
2H – Dec12 |
5.75 |
$0.570 |
9.649% |
$0.700 |
1H12 2.75ct ; 2H12 2.75ct + 3ct (Special) |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.2688) fm Yahoo
NOTES :
- Mkt Price is as on 28-Feb-13
- HLFin : 1H12 (Jun) – 4ct ; 2H12 (Dec) – 8ct (Final)
- ST Engg : 1H12 (Jun) – 3ct ; 2H12 (Dec) – 4ct (Final) + 9.8ct (Special)
- ComfortDelgro : Q412 (Dec) – 3.5ct ; Q212 (Jun) – 2.9ct
- StarHub : FY13 Div Guidance – 5ct/Q
- SBSTransit : Q212 (Jun) – 1.35ct ; Q412 (Dec) – 1.65ct
- M1 : 2H12 (Dec) – Final 6.3ct + Special 1.7ct ; 1H12 (Jun) – Interim 6.6ct
- MIIF : 1H12 (Jun) – 2.75ct ; 2H12 (Dec) – 2.75ct (Final) + 3ct (Special) ; Above Yield is Computed without Special Dividend
- SingTel : 1H13 (Sep12) – Interim 6.8ct
- SPAus : 1H13 (Sep12) – A4.1ct = A1.367ct (Franked) + A2.467ct (Interest) + A0.266ct (Capital Returns)
- SATSvcs : Q213 (Sep12) – Interim 5ct
- StarHub : Q312 (sep) – 5ct ; Q212 (Jun) – 5ct ; Q112 (Mar) – 5ct
- SMRT : Q213 (Sep12) – Interim 1.5ct
- SIAEC : Q213 (Sep12) – Interim 7ct
- SingPost : Q213 (Sep12) – 1.25ct ; Q113 (Jun12) – 1.25ct
- SPH : 2H12 (Aug) – Final =9ct + Special = 8ct ; 1H12 (Feb) – Interim = 7ct
- SPAus : 2H12 (Mar12) – A4ct = A1.333ct (Franked) + A2.159ct (Interest) + A0.508ct (Capital Returns) ; FY12 Guidance = A8.2ct ; 3-for-20 @ S$1.25 (A$1)
TELCOs – OCBC
EXPECTING HIGHER CAPEX IN 2013
- 1 near-miss, 2 hits
- Higher capex guidance
- Yield story likely unchanged
M1 below, rest mostly inline
Out of the three telcos, M1’s 4Q12 results were slightly below our forecast while the other two were mostly in line. Nevertheless, we note that M1 not only managed to post a recovery in its EBITDA margin, but also was the highest among the three. As M1 had earlier guided, the recovery was due to the upfront expensing of its smartphone subsidy. M1 also surprised with a special dividend of S$0.017/share on top of its final dividend of S$0.063. StarHub declared a quarterly dividend of S$0.05 as guided.
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by another healthy 2.0% QoQ to 4.3m in Dec quarter, led by SingTel with 2.5%, StarHub 1.7% and M1 1.6%. Monthly ARPUs were also quite stable; and all three telcos expect to see uplifts this year as more users switch over to the new tiered pricing plans with less generous data bundles; this aided by the introduction of more LTE-enabled smartphones.
Most expecting higher capex this year
For 2013, M1 expects to see a moderate earnings growth as it continues to benefit from the upfront expensing of smartphone subsidies; also expects to maintain a dividend payout of at least 80% of underlying profit. For StarHub, it expects single digit revenue growth and an EBITDA margin of 31%; no change to its quarterly S$0.05/share dividend guidance. But both telcos have started to guide for higher capex this year, which they continue to roll-out their 4G networks and also to cater for the growing data usage pattern. Lastly, SingTel has kept its previous guidance, but note that its year-end is in Mar.
Maintain OVERWEIGHT
For now, we maintain our OVERWEIGHT on the sector. But as the telcos have already done quite well YTD, further capital appreciation may be limited, although dividend yields are still relatively attractive. M1 remains our top pick.
TELECOM | OVERWEIGHT
19 Feb 2013
Sector Update
Singapore | Telecom Sector Asia Pacific Equity Research
MICA