ComfortDelgro – DMG
Highlights from 2Q12 results luncheon
We hosted ComfortDelGro (CD) for a post 2Q12 results luncheon. Management’s tone was positive: (1) Continues to see opportunities in Singapore taxi market (2) Confident in meeting taxi availability standards (3) BSEP to have neutral impact to CD’s earnings (4) China and Australia are targets for future expansion.
Well positioned as the dominant Taxi player in Singapore. Management shared that despite rising COE prices, it still believes in opportunities for growth in Singapore’s taxi market in the form of cashless transaction volumes and taxi bookings. CD has not increased rental rates for its newest batch of taxis and believes that operating margins of 11-12% still makes it an attractive business to hold on to.
CD likely to have less difficulty meeting taxi availability standards. On recent steps the government is taking to improve taxi availability, CD shared that about 80% of its taxi fleet runs on two shifts (two drivers sharing rental of one taxi). It believes that its performance on taxi availability standards would likely exceed the rest of the industry that is likely to have less than 50% of fleet running on two shifts.
“Earnings neutral” in Bus Services Enhancement Programme (BSEP). CD notes that although the government will be paying for buses as well as operating expenses under the BSEP, these will be taken onto CD’s books under assets and balanced with a liability to the government. A revenue grant will also be provided to offset against the depreciation of these assets.
Though CD will benefit from cost efficiencies from the increased fleet size, the government will charge CD its share of cost on an average cost basis. The recent increase in bus driver wages will also be borne by the government and there will not be anymore wage increase in Jan 2013. The BSEP is expected to have a neutral impact to CD’s earnings and CD could receive reimbursement through various income streams such as waived depot charges.
China and Australia targeted for expansion. CD has highlighted China and Australia as possible destinations for overseas expansion opportunities. Management commented that acquisitions should ideally range between S$50-S$100m but added that even a more sizable transaction in the likes of a few hundred million dollars would be achievable. CD targets investments that can generate an IRR of mid teens over a 10 year period.
ComfortDelgro – DMG
Highlights from 2Q12 results luncheon
We hosted ComfortDelGro (CD) for a post 2Q12 results luncheon. Management’s tone was positive: (1) Continues to see opportunities in Singapore taxi market (2) Confident in meeting taxi availability standards (3) BSEP to have neutral impact to CD’s earnings (4) China and Australia are targets for future expansion.
Well positioned as the dominant Taxi player in Singapore. Management shared that despite rising COE prices, it still believes in opportunities for growth in Singapore’s taxi market in the form of cashless transaction volumes and taxi bookings. CD has not increased rental rates for its newest batch of taxis and believes that operating margins of 11-12% still makes it an attractive business to hold on to.
CD likely to have less difficulty meeting taxi availability standards. On recent steps the government is taking to improve taxi availability, CD shared that about 80% of its taxi fleet runs on two shifts (two drivers sharing rental of one taxi). It believes that its performance on taxi availability standards would likely exceed the rest of the industry that is likely to have less than 50% of fleet running on two shifts.
“Earnings neutral” in Bus Services Enhancement Programme (BSEP). CD notes that although the government will be paying for buses as well as operating expenses under the BSEP, these will be taken onto CD’s books under assets and balanced with a liability to the government. A revenue grant will also be provided to offset against the depreciation of these assets.
Though CD will benefit from cost efficiencies from the increased fleet size, the government will charge CD its share of cost on an average cost basis. The recent increase in bus driver wages will also be borne by the government and there will not be anymore wage increase in Jan 2013. The BSEP is expected to have a neutral impact to CD’s earnings and CD could receive reimbursement through various income streams such as waived depot charges.
China and Australia targeted for expansion. CD has highlighted China and Australia as possible destinations for overseas expansion opportunities. Management commented that acquisitions should ideally range between S$50-S$100m but added that even a more sizable transaction in the likes of a few hundred million dollars would be achievable. CD targets investments that can generate an IRR of mid teens over a 10 year period.
SingTel – Kim Eng
Poor start to the year
Still on the wrong side of key trends. We expect SingTel to continue to face margin, competitive and currency headwinds in FYMar2013. The best that can be said is that earnings are likely to be stable, hence we have trimmed our forecasts only slightly despite a below expectations first quarter. However, the same cannot be said of cashflow, as capex is expected to rise on the back of 4G rollout and potentially expensive 4G spectrum auctions. Moreover, net debt/EBITDA is high at 1.1x. Against this backdrop, we see no upside for dividends. Maintain SELL.
Below expectations. SingTel reported underlying net profit of SGD850m, down 2.5% YoY and 16.9% QoQ, in 1Q13. The main culprits were escalating subscriber acquisition and retention costs in Singapore, a poor showing by Optus in Australia due to structural changes in its business, and headwinds from regional currencies in particular the rupee, rupiah and Australian dollar. 1Q13 results included an exceptional gain of SGD119m from the sale of Far EasTone stake.
No upside for earnings. SingTel has maintained its outlook of low single digit growth in revenue and flat EBITDA, implying a squeeze on margins, for both its Singapore and Australian businesses. In line with our expectations of muted performance for its associates, 1Q13 share of associates were flat YoY at SGD506m, about 40% of group pretax profit. Better results from AIS, Globe, Telkomsel and Bharti Africa were
offset by weakness in core Bharti markets.
Potential downside for cashflow. We expect free cashflow (excluding dividends from associate) to fall from SGD2.5b in FYMar2012 to SGD2.4b in FYMar2013 on the back of acquisitions, 4G network rollout in Singapore and Australia, rollout of cloud computing services for enterprises and a potentially expensive bid for BPL. There is potential downside to FCF as SingTel’s capex guidance does not include 4G spectrum auction costs in Singapore and Australia.
Maintain SELL with SOTP-derived TP of SGD3.03. Our target price for SingTel has risen on the back of higher target prices for Globe, AIS and Bharti in recent weeks. However, we prefer M1 for telco exposure as it offers a superior yield of 5.6% at current levels.
SingTel – Kim Eng
Poor start to the year
Still on the wrong side of key trends. We expect SingTel to continue to face margin, competitive and currency headwinds in FYMar2013. The best that can be said is that earnings are likely to be stable, hence we have trimmed our forecasts only slightly despite a below expectations first quarter. However, the same cannot be said of cashflow, as capex is expected to rise on the back of 4G rollout and potentially expensive 4G spectrum auctions. Moreover, net debt/EBITDA is high at 1.1x. Against this backdrop, we see no upside for dividends. Maintain SELL.
Below expectations. SingTel reported underlying net profit of SGD850m, down 2.5% YoY and 16.9% QoQ, in 1Q13. The main culprits were escalating subscriber acquisition and retention costs in Singapore, a poor showing by Optus in Australia due to structural changes in its business, and headwinds from regional currencies in particular the rupee, rupiah and Australian dollar. 1Q13 results included an exceptional gain of SGD119m from the sale of Far EasTone stake.
No upside for earnings. SingTel has maintained its outlook of low single digit growth in revenue and flat EBITDA, implying a squeeze on margins, for both its Singapore and Australian businesses. In line with our expectations of muted performance for its associates, 1Q13 share of associates were flat YoY at SGD506m, about 40% of group pretax profit. Better results from AIS, Globe, Telkomsel and Bharti Africa were
offset by weakness in core Bharti markets.
Potential downside for cashflow. We expect free cashflow (excluding dividends from associate) to fall from SGD2.5b in FYMar2012 to SGD2.4b in FYMar2013 on the back of acquisitions, 4G network rollout in Singapore and Australia, rollout of cloud computing services for enterprises and a potentially expensive bid for BPL. There is potential downside to FCF as SingTel’s capex guidance does not include 4G spectrum auction costs in Singapore and Australia.
Maintain SELL with SOTP-derived TP of SGD3.03. Our target price for SingTel has risen on the back of higher target prices for Globe, AIS and Bharti in recent weeks. However, we prefer M1 for telco exposure as it offers a superior yield of 5.6% at current levels.
SingTel – Lim and Tan
- Strip out the exceptionals (largely gain from sale of AFS Investments), underlying profit actually fell 3%, instead of the 3% gain as reported for Q1 ended Jun '12.
- Optus Australia and pedestrian performance by associates (dragged down by Bharti of India, which recently reported a sharp earnings slide) are to blame,
- We remain Neutral, preferring StarHub for its more attractive yield: 5.4% at $3.72 vs Sing Tel's 4.7% based on 15.8 cents paid in respect for ye Mar '12.
- The recent strong performance of Sing Tel: share price hitting a high of $3.62 after a clear dividend policy was spelled out, is largely over.