SATS – CIMB
Ready for take-off
We turn positive on SATS, prompted by a breakthrough in Changi Airport’s volumes intertwined with a recovery in profit margins as food inflation peters out. Benefitting from booming air travel in Singapore, SATS offers stable earnings growth and yields of over 4%.
We upgrade it from Neutral to Outperform, with catalysts expected from its margin recovery and continued air-traffic strength. We lift FY14-15 EPS by 1% for higher volumes and raise our target price, now on 16.8x CY14 P/E, 1 SD above its 8-year mean (from 14.4x, 8-year mean). We believe our higher valuation can be justified by breakthrough volumes and better margins.
Volumes at a new high
A breakthrough in the number of flights handled by Changi Airport prompts us to revisit SATS, the airport’s dominant ground handler. In Nov, Changi Airport handled an average of 920 flights per day, crossing the 900 mark for the first time ever. We were previously wary of a margin contraction and cautious on volume growth, as flights handled appeared to have levelled out at around 880 per day. The recent breakthrough is evidence of success in the airport’s measures to improve air traffic.
Margins have bottomed out
SATS’s profit margins have also bottomed out, we believe. Easing food inflation leaves room for further margin expansion. 2Q13 profit margins were the best in six quarters as food inflation tapered off. We see a further easing in food inflation and productivity gains. SATS’s core net profit margin has the potential to improve 0.4% pt to 9.9% in FY13, in our estimation. Margins could grow further in FY14 if food inflation is kept at bay.
Upgrade to Outperform
We upgraded SATS from Underperform to Neutral last quarter on evidence of a margin recovery. We now upgrade it to Outperform, seeing stronger-than-expected air traffic through Singapore as an additional catalyst.
M1 – Phillip
Positive on 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.
- 0.8% y-y increase in Net Income, Service revenue healthy with 2.9% y-y growth
- Positive on S$5.50 uplift in ARPU from data monetizing among 4G tiered data plan customers
- Higher FY2013 capex guidance of S$130m – S$150m
FY2012 final & special dividend of 8.0 cents proposed
- Maintain Neutral, with unchanged TP of S$2.41.
What is the news?
M1 reported a marginal 0.8% y-y increase in Net profits. Service revenue was positive, with y-y increases in revenue contribution from Mobile telecommunication services and Fixed services. International call services were however down on lower roaming and International calling card revenue. Expenses remain well managed. Net income was below expectations due to under provision of tax in prior year, and lower than expected margins on handsets.
How do we view this?
The biggest positive from this set of results was management’s guidance of an ARPU uplift of S$5.50 from the data monetizing of 4G tiered data plans. We expect to see continued data monetizing, although at a tapered rate due to higher proportion of signups from more cost conscious customers moving forward. Management also guided higher capex in FY2013, at between S$130m and S$150m. This is due to higher expenditure required to meet the high QOS standards set by the government, and the enhancement of the network. M1 also proposed a final and special dividend of 8.0 cents, bringing the total FY2012 dividend to 14.6 cents, which is 0.1 cent higher than FY2011’s total dividend.
Investment Actions?
We adjust our figures to reflect 4Q12 earnings. We continue to expect M1 to deliver stable net profits moving forward. M1’s dividend yield of 5.3% continues to remains attractive at current prices. We maintain our “Neutral” rating, with an unchanged TP of S$2.41.
M1 – OCBC
FY12 RESULTS MOSTLY IN LINE
- Higher-than-expected tax expense
- Guides for moderate earnings growth
- Keeps minimum 80% payout ratio
Special dividend of 1.7 cents
M1 Ltd reported its 4Q12 results last evening. While revenue of S$327.4m (+3.2% YoY, +28.5% QoQ) was 5.0% ahead of our forecast, aided by higher handset sales of the new iPhone 5 and new Samsung Note 2, net profit of S$37.9m (flat YoY, +14.5% QoQ) was 11.7% below our estimate. This was mainly due to higher-than expected tax expense of S$11.8m (+78.8% YoY. +63.9% QoQ) arising from prior years’ under-provision of deferred taxation. For FY12, revenue came in at S$1076.8m, or 1.5% above our number, while net profit of S$146.5m was 3.3% below. M1 declared a final dividend of S$0.063/share and a special dividend of S$0.017/share, bringing the total full-year dividend to S$0.146 (versus S$0.145).
Expects moderate earnings growth in 2013
Going forward, management expects to see moderate earnings growth in 2013, aided by continued strong take-up of 4G services, where it already has 146k 4G subscribers as of end-2012, thanks to its faster 4G roll-out across the island compared to its peers; uplift from its new tiered pricing plans. Management also cites a likely acceleration of fiber adoption as a driver as margin will improve with scale – M1 currently has close to 52k NBN customers as of end 2012; company believes that it can hit optimal efficiency with 100k users. Meanwhile, M1 will spend some S$130-150m capex to expand its mobile coverage and capacity (partly due to new QoS imposed by IDA). It also maintains a minimum 80% dividend payout ratio.
Maintain BUY with S$2.89
We are paring our FY13 earnings forecast by 9% after taking the guidance into consideration. But as we shift our DCF valuations out to 2015, our fair value remains unchanged at S$2.89. Maintain BUY as we still believes M1 has potential gain market share in the NBN segment.
TELCOs – CIMB
Previewing 4Q12
StarHub’s FY12 earnings could surprise positively while that of M1 is likely to be in line. More importantly, we expect StarHub to raise its quarterly dividend from 5 Scts to 6 Scts given its multi-year low gearing and lower capex in FY13.
Both telcos should see 4Q12 net profit weaken qoq due to seasonally-higher subscriber acquisition costs but that of StarHub should only be a little lower due to better bulk discount of devices. No change to our estimates for M1 and StarHub and our Neutral stand on the sector as it lacks rerating catalysts. StarHub (Outperform) is our top pick given a higher dividend. We will preview SingTel separately.
Higher SAC in 4Q12
Key themes for the 4Q12 results are: 1) competition in 4Q12 was fairly rational and did not stray beyond the bounds of seasonality, based on our industry checks. However, the hotspot of competition remained fixed broadband, 2) EBITDA margins are expected to come under pressure owing to higher subscriber acquisition costs (SACs) in relation to festive promotions and the full impact of subsidies for the iPhone 5, and 3) revenue is estimated to be higher given data monetisation and seasonality.
4Q12 expectations for M1
We expect M1’s FY12 core net profit to be line with both our and consensus estimates. However, a big swing factor is the composition of iPhones vs. non-iPhone devices as accounting for the former is based on fair value and has little impact on quarterly earnings whereas the latter does. 4Q12 service revenue should have improved qoq due to revenue contribution from subs growth in 3Q and revision of data prices. M1 is expected to release results on 21 Jan.
StarHub could surprise positively
StarHub’s FY12 core net profit could surprise the market by 4% but come within our forecast. The telco hinted that its EBITDA margin could exceed its guidance of 30% due to lower SACs as it has secured better bulk pricing for handsets and other devices. More importantly, we expect StarHub to raise its quarterly dividends from 5 Scts to 6 Scts. The company will release its results on 7 Feb.
TELCOs – CIMB
Previewing 4Q12
StarHub’s FY12 earnings could surprise positively while that of M1 is likely to be in line. More importantly, we expect StarHub to raise its quarterly dividend from 5 Scts to 6 Scts given its multi-year low gearing and lower capex in FY13.
Both telcos should see 4Q12 net profit weaken qoq due to seasonally-higher subscriber acquisition costs but that of StarHub should only be a little lower due to better bulk discount of devices. No change to our estimates for M1 and StarHub and our Neutral stand on the sector as it lacks rerating catalysts. StarHub (Outperform) is our top pick given a higher dividend. We will preview SingTel separately.
Higher SAC in 4Q12
Key themes for the 4Q12 results are: 1) competition in 4Q12 was fairly rational and did not stray beyond the bounds of seasonality, based on our industry checks. However, the hotspot of competition remained fixed broadband, 2) EBITDA margins are expected to come under pressure owing to higher subscriber acquisition costs (SACs) in relation to festive promotions and the full impact of subsidies for the iPhone 5, and 3) revenue is estimated to be higher given data monetisation and seasonality.
4Q12 expectations for M1
We expect M1’s FY12 core net profit to be line with both our and consensus estimates. However, a big swing factor is the composition of iPhones vs. non-iPhone devices as accounting for the former is based on fair value and has little impact on quarterly earnings whereas the latter does. 4Q12 service revenue should have improved qoq due to revenue contribution from subs growth in 3Q and revision of data prices. M1 is expected to release results on 21 Jan.
StarHub could surprise positively
StarHub’s FY12 core net profit could surprise the market by 4% but come within our forecast. The telco hinted that its EBITDA margin could exceed its guidance of 30% due to lower SACs as it has secured better bulk pricing for handsets and other devices. More importantly, we expect StarHub to raise its quarterly dividends from 5 Scts to 6 Scts. The company will release its results on 7 Feb.