MIIF – DBSV
Yield may not be sustainable
- Declares 2.75Scts dividend for 1H12, guidance for 2H12 maintained at similar level
- Dividends are unlikely to be sustainable at this level in FY13 and beyond, as income from the expressway asset is set to reduce substantially
- Downgrade to HOLD with TP of S$0.58
Write-down in value of expressway asset. MIIF declared 2.75Scts dividend for 1H12, and guided for a similar payout for 2H12, in line with our estimates. The key highlight was a write-down in the valuation of Hua Nan Expressway (HNE) by S$95.7m, as management accounted for the adverse impact of a reduction in toll rates announced in end-May.
Underlying results still robust. In terms of operational performance, Taiwan Broadband Communications continued to see healthy subscriber growth in digital cable TV, and 1H12 EBITDA was up 4.4%, in line with our estimates. Over at Changshu Xinghua Port, revenue growth was driven by log volumes, but higher one-off costs resulted in 8% EBITDA decline. Traffic at HNE grew strongly by 16% in 1H12 owing to positive impact from the opening of Guanghe Expressway, but revenue growth was more muted owing to reduced toll rates from June. Going forward, we expect HNE earnings to decline by 20% in FY12, and 30% in FY13.
Dividends unsustainable at current level. Though our valuations already affect much of the downside in HNE earnings, we revise down our valuation for HNE further to account for potential loss of revenue from a recently proposed regulation which will allow free use of toll roads during major public holidays in China. Hence, our TP is revised down to S$0.58. Downgrade to HOLD, as we believe a reduction in annual dividends from current level of 5.5UScts is inevitable. While DPS of 5Scts could be supported in FY13, dividends in FY14 and onwards could head lower, as the debt amortization profile steps up at HNE, potentially further restricting ability to upstream dividends to MIIF.
MIIF – AmFraser
Results In Line With Expectations
- Results in line with our expectations: MIIF exhibited a strong showing in its 1HFY12 results, with net income up by S$15.2mil to reach S$19.6mil.
- Major overreaction view played out well for us: In an earlier company update, we noted that a sharp decline in MIIF’s share price from ex‐div 57c to 50c on 5 June 2012 was a major overreaction to the estimated impact of the enforced reduction of toll rates from CNY0.75/km to CNY0.60/km on HNE. At that point, we highlighted that this would present an attractive entry point. MIIF is currently trading at 54.5c. Factoring in the impact of lowered tariffs and the opening of Guanghe Expressway, we are presently valuing HNE at S$128.3mil.
- Taiwan Broadband Communications (TBC) records improvement in margins: TBC recorded a 3.7% YoY growth in its overall revenues in 1HFY12 on the back of increases in subscriber numbers across all product segments. More noteworthy is TBC’s improvement in its EBITDA margin, which we believe can be attributed to the robust digital subscription and broadband‐subscription uptake. We believe TBC’s continued initiatives toward ramping up its share of the Digital TV market in Taiwan would pose upside pressure on its margin prospects. TBC raised an additional TWD1.5bil capital expenditure facility to facilitate its push into the Taiwanese Digital TV market and the management believes that initiatives on this front would help increase penetration rates going forward.
- A mixed showing for Changshu Xinghua Port (CXP): Despite clocking in a 6.0% YoY increase in revenue, EBITDA margin fell by 6.7% YoY in 1HFY12. While this was partly a result of a one‐off expense due to the construction of a temporary stacking yard, we believe this can also be linked to the gradual shift of cargo composition towards lower margin products such as logs and paper & pulp. We maintain our margin expectation at 48%.
- Expect 5.0c dividend in FY13F: We maintain our view that a 5.0c dividend would be a sustainable level for MIIF going forward given its existing large cash balance. A reduction in dividend to 5.0c would still present an attractive yield of 8‐9%.
- A tantalizing 10% yield: MIIF has declared a 2.75c dividend in the half‐year ending June 2012 and has guided for a 2.75c dividend in the second half. This translates into a very enticing yield of 10.2%. Our fair value now stands at S$0.655, which means that MIIF offers capital gains potential of 20%. This, coupled with a 10% yield, makes MIIF an attractive play in the current market climate. BUY.
StarHub – CIMB
Still shining in 2Q
1H12 earnings were 4% and 9% above CIMB's and consensus estimates, respectively, due to margin surprise and we consider it in line as we expect margins to moderate in 2H due to higher handset subsidies and competition. StarHub maintained its outlook for FY12.
But it nudged its capex up as it is accelerating its LTE rollout. Maintain DCF-based target price (WACC 7.9%/LTG 1.4%) and Outperform call given its higher dividend potential as its net debt/EBITDA of 0.5x is its lowest since 2Q06. Hence, StarHub remains our top Singapore telco pick.
2Q earnings highlights
StarHub's operational performance was robust with service revenue rising 2% qoq and 4% yoy and EBITDA margin gaining 1.5% pts yoy and 0.4% pts qoq. This is mainly due to a 1.3% qoq decline in operational costs, thanks to lower marketing expenses and cost of handsets.
However, a few red flags:
1) 2Q prepaid revenue fell 2% qoq and 5% yoy due to lower ARPUs and fewer subscribers as users switched out after promotions expired,
2) the number of pay TV subscribers fell 0.2% qoq and yoy as customers churned out after short-term promotions expired, and
3) broadband user numbers also dipped 0.2% qoq as they left for cheaper offerings by new entrants riding on NGNBN.
Margin pressure in 2H
StarHub maintained its EBITDA margin guidance of 30% despite 1H's coming in at 32% because it expects margins to come under pressure when the new iPhone is launched in 4Q. It expects the device to be very popular given the widely-anticipated radical upgrades and new features.
Maintain outlook, nudging up capex
Starhub maintained its FY12 outlook and kept its 20 Scts DPS. We are still optimistic about its dividend upside potential as net debt/EBITDA is at its lowest since 2Q06. However, it has revised up its capex guidance from "below 11%" of revenue to "about 11%". It plans to accelerate its LTE rollout in 2H12, ahead of the release of new LTE handsets.
SATS – Phillip
Visit to MBCCS
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.
- New cruise centre contribution immaterial in near term
- Highly variable cost structure
- Dividend yields of 5-6% remains attractive
- Maintain Neutral with TP of S$2.65
What is the news?
We visited the Marina Bay Cruise Centre Singapore (MBCCS) that is operated by SATS's new JV, SATS-Creuers. Salient points from the visit:
- Infrastructure. 80 check-in counters, max capacity of 6,800 passengers at any time, 25 coach bays, 327 carpark lots, walkway linkage to MRT station expected to be ready in 2014, minimal retail space.
- Customers. Royal Carribean International, Celebrity Cruises, Holland America Lines, Princess Cruises, Silversea Cruises and Azamara Cruises. Hosted 8 vessels since opening in May 2012. Another 60 plus vessels scheduled till the end of FY13E.
- CruiseFly. 5 airlines (Singapore Airlines, SilkAir, Air China, China Eastern & China Southern) currently offer CruiseFly services.
- Staff. 12-15 permanent staff with extra workload handled by subcontractors.
- Financials. Not expected to reach revenue of S$10mn in the near term, highly variable operating cost structure.
How do we view this?
Our view remains unchanged and do not think that this new venture would have a material impact to SATS and its stock in the next 1-2 years. The ability to handle larger vessels is the only significant advantage that MBCCS has over the existing cruise terminal facility at Harbourfront Centre.
Investment Actions?
While we maintain our Neutral view on the stock, our Singapore Sector Strategist remains overweight on the Aviation Services sector for their sustainable yields. On our projections, SATS would yield 5-6% over the next 3 years.
StarHub – Kim Eng
The New iPhone Cometh
2Q could be all she wrote as a new iPhone looms. StarHub will report 2Q12 results on 8 Aug and earnings should rise on seasonal strength. The stock’s continued rise is a good chance to take profit, in our view, as the launch of a new iPhone in 3Q12 can be expected to depress margins in 2H12. Also, yields have been compressed to historical lows and we do not expect upside in dividends given potentially heightened capital commitments next year for BPL and 4G spectrum cost. The important factors to look out for are EBITDA margin, Android handset mix, pay TV content cost and management tone on dividends. Finally, do keep an eye on the Samsung/Apple legal tiff as it is likely to impact future phone prices and telco subsidies. SELL.
2Q12 usually the strongest quarter but iPhone coming. Given benign competition during the quarter, we expect service revenue to grow YoY and QoQ, driven by mobile and Pay TV, which had the benefit of Euro 2012 revenue in June. Topline is expected to grow 5% YoY to ~SGD600m while net profit should rise 15-20% YoY to SGD90-95m, aided by better margins from lower subsidies, fueled by higher Android sales. However, 2H12 is expected to be hit by lower margins given the impending launch of a new iPhone.
The following are the most important numbers/factors to look out for.
1. EBITDA margin. We expect a YoY rise on higher mix of Android handsets. 30-32% would be expected but below 30% would disappoint, not that this matters much for the rest of the year. With the rumor mill fingering a Sep 12 launch for iPhone 5, we can expect all the telcos to suffer a margin crunch in 4Q12 and 1Q13. Despite overseas telcos’ attempts to break away from the margin-killing phone subsidy model, this is unlikely to happen in Singapore for the foreseeable future.
2. Android handset mix. Android handsets accounted for 50% of all handsets sold in 1Q12, up from 25% before. M1 said its Android mix in 2Q12 was 70% so we would not be surprised if StarHub reports a similar number. A range of 60-70% would be within expectations, while anything below 60% would be worrying. However, we think anything below 70% is unlikely as StarHub’s SmartSurf data-bundled mobile plans and MaxMobile stand-alone data plans are highly attractive.
3. Pay TV content cost. StarHub recognised the cost of the UEFA Euro 2012 soccer tournament in 2Q12, which hopefully was sufficiently matched by subscription, advertising and sponsorship revenue. We do not expect any negative surprises as it started selling subscriptions three months ahead of the matches, and mioTV viewers would also have been able to subscribe via cross-carriage. More importantly would be any new updates on the upcoming BPL auction in Sep/Oct 2012.
4. Dividends. While we expect 2Q12 DPS to remain at 5 cents a share and FY12 full year dividends at 20 cents a share, we would watch out for the tone of management’s commentary on future dividends. At this point, we expect the cost of BPL and 4G spectrum rights, payable next year, to reduce management’s willingness to consider raising its ordinary dividends. Management has also previously ruled out the possibility of one-off capital distribution.