STEng – Kim Eng
Holding On after a Stellar Ride
3QFY12 results in-line, HOLD on price run-up. ST Engineering (STE) reported 9MFY12 PATMI of SGD424m, coming in at 73% of our full-year forecasts. 3QFY13 PATMI of SGD146m was a 9.5% improvement YoY, contributed by double-digit profitability growth in the Electronics (+SGD3.8m, +11%) and Land Systems (+SGD4.6m, +30%) segments. We leave our estimates largely intact, downgrading the stock to a HOLD as we believe STE is fairly valued at current price levels. Target Price remains at SGD3.78.
Orderbook still healthy, but no record this 3Q. STE’s orderbook stood at SGD12.5b this 3Q, just shy of the record SGD12.7b level announced in 2QFY12. SGD1.04b of new contracts were announced this quarter, with ST Aerospace’s MRO contracts carrying the bulk at SGD692m. The remaining contracts were previously announced: SGD166m from ST Electronics (Rail electronics, Sat-comms, sensor solutions) and SGD179m from ST Marine (Shipbuilding and Ship repair, including two OSVs).
Marine profit declines, Aerospace shows muted growth. STE’s overall 3QFY12 PBT growth of 11% was held back by a declining PBT from ST Marine (-2.8% YoY) and muted growth from ST Aerospace (+3.2% YoY). ST Marine’s lower overall PBT was caused by poorer Shipbuilding (-17.3% YoY) and Ship repair (-31.7% YoY) results. ST Aerospace had a significantly poorer PBT from its Maintenance & Modification segment (-18.3%).
Fairly valued – downgrade to HOLD. While results were in line with our expectations, the recent share price run-up has led to our downgrade of STE to a HOLD recommendation. Our valuation remains pegged to STE’s historical mean 19x FY2013 PER. STE’s strong balance sheet and cash-flows should still support dividend yields of ~5%, which existing investors can continue to enjoy. For now, we keep a look-out for catalysts which include bumper contracts that push its orderbook past record levels once again.
SATS – Phillip
Positive Earnings, Attractive Dividends
Company Overview
SATS Ltd is a provider of Airport Services & Food Solutions with a dominant presence in Singapore’s Changi Airport. The Group also has a network of JVs across Asia and holds a majority stake in TFK Corp, an inflight catering business based in Japan.
- 9% growth in underlying net profit
- Sequentially better profitability
- Highest contributions from TFK Corp.
- Expect attractive yields of 5.5-6.1% over the next 3yrs
- Upgrade to Accumulate with TP of S$2.94
What is the news?
SATS reported a strong set of results in 2QFY13 with PATMI of S$50.3mn (+25.4%). Revenue growth was broad based (Gateway Services: +7.9%, Food Solutions: +9.3%) with notably strong contributions from TFK Corp, largely due to seasonally effects. Driven by a 0.5ppt improvement in margins, EBITDA outpaced sales growth at SATS. Outlook statement highlights near term weakness due to the expected decline in the air cargo throughput. Interim dividend was kept unchanged at 5.0cents.
How do we view this?
The results were above our expectations on marginally higher level of sales and better profitability. We expect SATS to post another quarter of stellar performance as we enter the seasonally strongest quarter for its core aviation business in Singapore.
Investment Actions?
Based on our payout ratio assumption of 90%, we estimate that the stock would yield 5.5-6.1% over the next 3yrs. We kept of DCF model unchanged, but lifted our target price toS$2.94 due to higher earnings forecasts and upgrade our rating on SATS to Accumulate.
SATS – Phillip
Positive Earnings, Attractive Dividends
Company Overview
SATS Ltd is a provider of Airport Services & Food Solutions with a dominant presence in Singapore’s Changi Airport. The Group also has a network of JVs across Asia and holds a majority stake in TFK Corp, an inflight catering business based in Japan.
- 9% growth in underlying net profit
- Sequentially better profitability
- Highest contributions from TFK Corp.
- Expect attractive yields of 5.5-6.1% over the next 3yrs
- Upgrade to Accumulate with TP of S$2.94
What is the news?
SATS reported a strong set of results in 2QFY13 with PATMI of S$50.3mn (+25.4%). Revenue growth was broad based (Gateway Services: +7.9%, Food Solutions: +9.3%) with notably strong contributions from TFK Corp, largely due to seasonally effects. Driven by a 0.5ppt improvement in margins, EBITDA outpaced sales growth at SATS. Outlook statement highlights near term weakness due to the expected decline in the air cargo throughput. Interim dividend was kept unchanged at 5.0cents.
How do we view this?
The results were above our expectations on marginally higher level of sales and better profitability. We expect SATS to post another quarter of stellar performance as we enter the seasonally strongest quarter for its core aviation business in Singapore.
Investment Actions?
Based on our payout ratio assumption of 90%, we estimate that the stock would yield 5.5-6.1% over the next 3yrs. We kept of DCF model unchanged, but lifted our target price toS$2.94 due to higher earnings forecasts and upgrade our rating on SATS to Accumulate.
StarHub – DMG
A Starry Quarter
Starhub posted a fairly strong quarter as opex fell faster than expected on subdued revenue after it renegotiated interconnect rates. We expect the 4Q12 numbers to be weaker due to the full impact of the iPhone5 and the typical seasonal boost in A&P. We tweak up our forecasts by a marginal 2% for FY12/13 after adjusting our traffic cost assumptions, with FV rising to SGD3.40 from SGD3.30 based on 8.0% WACC. Starhub remains our preferred exposure to the sector for its capital management headroom and robust earnings. An expected 5 cents/share quarterly dividend was declared, in line with the guidance for FY12.
Broadly in line. Although 9MFY12 annualised results were some 6% above our and consensus expectations, we consider Starhub’s numbers in line as we see a weaker Dec quarter on rising subscriber acquisition cost (SAC) and A&P from the full three-month impact of the iPhone5, for which there is strong pent-up demand. The q-o-q and y-o-y dip in mobile revenue was more than offset by falling traffic and content costs post-Euro 2012, which lifted EBITDA margin to 34% in 3Q12 – the highest since 3Q09.
Lower interconnect/outbound revenue. The renegotiation with its partners for lower interconnect rates and weaker roaming revenue led to the slide in postpaid ARPU q-o-q, despite the strong net-adds of 17k. Its prepaid base continued to shrink although management believes this has bottomed. Excluding the interconnect adjustments, mobile revenue would have tracked the 2% growth run-rate seen in 1HFY12.
Data usage poised to accelerate. Despite being able to only monetise about 20% of its base that utilizes over 2GB of data/month, Starhub is confident of capturing stronger revenue going forward with greater LTE adoption and higher data usage on smartphones. According to Starhub, data usage per subscriber has effectively doubled since the iPhone’s introduction in 2009. To stoke LTE demand, Starhub and M1 have extended the promotion periods on their LTE plans to Dec 31 2013 from March 2013.
4Q capex to surge. Starhub will book higher capex from LTE in the final quarter and has maintained its capex/sales guidance of 11% for the full year. This would imply a near doubling of capex q-o-q.
BPL. Starhub did not reveal its intentions in relation to BPL, highlighting that talks between Singtel and FAPL have yet to be concluded. We do not expect Starhub to vie for BPL although Singtel has inked the content on a non-exclusive basis. It expects pay-TV churn to rise going forward with the opening of some of its content, but the availability of content on the OTT (over the top) platform should mitigate churn.
StarHub – DMG
A Starry Quarter
Starhub posted a fairly strong quarter as opex fell faster than expected on subdued revenue after it renegotiated interconnect rates. We expect the 4Q12 numbers to be weaker due to the full impact of the iPhone5 and the typical seasonal boost in A&P. We tweak up our forecasts by a marginal 2% for FY12/13 after adjusting our traffic cost assumptions, with FV rising to SGD3.40 from SGD3.30 based on 8.0% WACC. Starhub remains our preferred exposure to the sector for its capital management headroom and robust earnings. An expected 5 cents/share quarterly dividend was declared, in line with the guidance for FY12.
Broadly in line. Although 9MFY12 annualised results were some 6% above our and consensus expectations, we consider Starhub’s numbers in line as we see a weaker Dec quarter on rising subscriber acquisition cost (SAC) and A&P from the full three-month impact of the iPhone5, for which there is strong pent-up demand. The q-o-q and y-o-y dip in mobile revenue was more than offset by falling traffic and content costs post-Euro 2012, which lifted EBITDA margin to 34% in 3Q12 – the highest since 3Q09.
Lower interconnect/outbound revenue. The renegotiation with its partners for lower interconnect rates and weaker roaming revenue led to the slide in postpaid ARPU q-o-q, despite the strong net-adds of 17k. Its prepaid base continued to shrink although management believes this has bottomed. Excluding the interconnect adjustments, mobile revenue would have tracked the 2% growth run-rate seen in 1HFY12.
Data usage poised to accelerate. Despite being able to only monetise about 20% of its base that utilizes over 2GB of data/month, Starhub is confident of capturing stronger revenue going forward with greater LTE adoption and higher data usage on smartphones. According to Starhub, data usage per subscriber has effectively doubled since the iPhone’s introduction in 2009. To stoke LTE demand, Starhub and M1 have extended the promotion periods on their LTE plans to Dec 31 2013 from March 2013.
4Q capex to surge. Starhub will book higher capex from LTE in the final quarter and has maintained its capex/sales guidance of 11% for the full year. This would imply a near doubling of capex q-o-q.
BPL. Starhub did not reveal its intentions in relation to BPL, highlighting that talks between Singtel and FAPL have yet to be concluded. We do not expect Starhub to vie for BPL although Singtel has inked the content on a non-exclusive basis. It expects pay-TV churn to rise going forward with the opening of some of its content, but the availability of content on the OTT (over the top) platform should mitigate churn.