M1 – CIMB
Android accounting impact
M1’s 2Q12 core net profit missed our forecast and consensus by 16% and 11% respectively due to the accounting of non-iPhone device subsidies. Despite lower earnings, M1 pledged to maintain absolute DPS. It declared a 1H12 DPS of 6.6 cts, unchanged yoy.
We maintain Neutral on M1 but raise our DCF-based target price by 14% to S$2.86 on: 1) lower subsidies given the rising popularity of the lower-cost Android devices vs iPhones and 2) lower WACC of 7.6% vs 7.9% to reflect its fairly attractive dividends. We also adjust our FY12-14 EPS forecasts by -7% to +3%. StarHub remains our top pick.
Profitability impacted by accounting
Although its cashflows are unaffected, M1’s margins were impacted negatively by its accounting treatment for Android devices where the subsidies are expensed vs being amortised over the contract period for the iPhones. We suspect that this impact will carry over to 3Q12 as the very popular Samsung Galaxy S3 had only a one-month impact in 2Q12 since it was launched in end-May. Android devices made up about 70% of the total devices sold in 2Q, a reverse from previous quarters where the iPhones dominated. However, we think margins should improve thereafter when: 1) the new iPhone is launched, typically in 4Q, and 2) the impact of the Samsung Galaxy S3 washes through.
Outlook
Not surprisingly, M1 expects a “short-term” impact of handset subsidies on its profitability. It reiterated FY12 capex of S$120m. M1 views OpenNet’s 29% higher installation quota positively, but feels that it is insufficient to reduce the service activation period.
Maintaining dividends
Despite net profit being weighed down by expensing subsidies, M1 pledged to maintain its absolute FY11 DPS in FY12, i.e. by raising its payout ratio. The company said that it planned to maintain its FY11 absolute DPS of 14.5cts for FY12. It declared an interim dividend of 6.6cts (80% payout vs 70% in 1H11).
SPH – DBSV
Low growth but reasonable yields
• Core 3Q earnings in line with expectations
• Muted growth on cautious GDP outlook
• Dividend yield remains attractive at 6%
• Maintain Hold, TP unchanged at S$4.01
Highlights
Core 3Q results in line. Headline net profit fell 11.5% y-o-y to S$99.8m, slightly below our expectations, largely due to lower investment income (S$9.5m, -60%) and higher staff costs (S$94m, – 6%) as a result of bonus provisions. Core operations were otherwise resilient with revenue growth of 1%, helped by strong property rental revenue (S$48.7m, +13%). Despite worries about the global economy, print ad revenues remained resilient and registered marginal growth of 0.3%. This was offset, however, by slowing circulation revenue (-3% y-o-y to S$52.4m).
Revenue from the newspaper and magazine segment stayed relatively flat at S$261m vs S$263m in 3Q11. 9M12 earnings of S$281.4m now account for 72% of FY12’s earnings forecast, in line with expectations considering lower earnings, due to lower investment income. Investment income was strong in FY11 due to non-recurring recovery of losses arising from the Lehman crisis.
Our View
Growing rental income is key to growing volatility in media sector. We see SPH’s growing rental income as a key bulwark against potential volatility in ad spend and weakening circulation. The property segment now contributes 15% of revenues (13% last year) and 22% of profit before tax (14% last year). In contrast, newspaper and magazine’s PBT declined from S$95.7m to S$91.6m. The property segment has therefore become increasingly important in mitigating earnings volatility in the media segment, even as GDP expectations for Singapore this year are not expected to outpace last year.
Earnings growth likely to be muted, in line with Singapore’s cautious GDP growth expectations. Our DBS economist is forecasting GDP growth at 3.5% vs 4.9% last year. Since ad spend correlates well with Singapore’s GDP growth, we remain conservative over such growth in the coming quarters. We have imputed 2% growth in Ad Ex in FY13F, a marginal growth from our forecast of a 0% growth in FY12F.
Recommendation
Maintain Hold for 6% yield, TP unchanged at S$4.01. Even though growth may not be exciting, the stock is still attractive for its dividend yield of 6%. We therefore maintain HOLD with our sum-of-parts derived TP unchanged S$4.01.
SPH – DBSV
Low growth but reasonable yields
• Core 3Q earnings in line with expectations
• Muted growth on cautious GDP outlook
• Dividend yield remains attractive at 6%
• Maintain Hold, TP unchanged at S$4.01
Highlights
Core 3Q results in line. Headline net profit fell 11.5% y-o-y to S$99.8m, slightly below our expectations, largely due to lower investment income (S$9.5m, -60%) and higher staff costs (S$94m, – 6%) as a result of bonus provisions. Core operations were otherwise resilient with revenue growth of 1%, helped by strong property rental revenue (S$48.7m, +13%). Despite worries about the global economy, print ad revenues remained resilient and registered marginal growth of 0.3%. This was offset, however, by slowing circulation revenue (-3% y-o-y to S$52.4m).
Revenue from the newspaper and magazine segment stayed relatively flat at S$261m vs S$263m in 3Q11. 9M12 earnings of S$281.4m now account for 72% of FY12’s earnings forecast, in line with expectations considering lower earnings, due to lower investment income. Investment income was strong in FY11 due to non-recurring recovery of losses arising from the Lehman crisis.
Our View
Growing rental income is key to growing volatility in media sector. We see SPH’s growing rental income as a key bulwark against potential volatility in ad spend and weakening circulation. The property segment now contributes 15% of revenues (13% last year) and 22% of profit before tax (14% last year). In contrast, newspaper and magazine’s PBT declined from S$95.7m to S$91.6m. The property segment has therefore become increasingly important in mitigating earnings volatility in the media segment, even as GDP expectations for Singapore this year are not expected to outpace last year.
Earnings growth likely to be muted, in line with Singapore’s cautious GDP growth expectations. Our DBS economist is forecasting GDP growth at 3.5% vs 4.9% last year. Since ad spend correlates well with Singapore’s GDP growth, we remain conservative over such growth in the coming quarters. We have imputed 2% growth in Ad Ex in FY13F, a marginal growth from our forecast of a 0% growth in FY12F.
Recommendation
Maintain Hold for 6% yield, TP unchanged at S$4.01. Even though growth may not be exciting, the stock is still attractive for its dividend yield of 6%. We therefore maintain HOLD with our sum-of-parts derived TP unchanged S$4.01.
SMRT – TODAY
SMRT fined S$2 million
Money to be donated to Public Transport Fund to help needy; SMRT has 14 days to appeal
For its failures resulting in the December train disruptions, public transport operator SMRT was yesterday slapped with the maximum fine of S$2 million by the Government.
The disruptions on Dec 15 and 17 affected more than 200,000 commuters. In a statement announcing the penalties, the Land Transport Authority (LTA) said the money will be donated to the Public Transport Fund to help needy families with transport fares.
SMRT has 14 days to appeal, and the operator – which had already lost S$4.4 million because of the disruptions – declined to comment in response to TODAY’s queries on whether it is accepting the fines or planning an appeal.
Nevertheless, SMRT said in a statement that the LTA “has informed us … of its intention to fine us S$1 million for each of the two disruptions”.
SMRT reiterated that, since the incidents, it has been “implementing various initiatives to prevent recurrence and improve service reliability and incident response in collaboration with the LTA”.
It will implement further improvements and work closely with the LTA to enhance reliability and service levels, SMRT said.
According to the LTA, its investigations found that SMRT had “failed to meet its licensing obligations for the North-South and East-West Lines (NSEWL)”.
The regulator said: “It has failed, among other things, to exercise due diligence and vigilance expected of a public transport operator, and to maintain its network in good and efficient working condition.”
SMRT was also found to be in breach of the Operating Performance Standards for the NSEWL in both incidents.
The LTA also revealed that its internal investigation on the causes of the incidents is consistent with the findings of the Committee of Inquiry – in particular, that the incidents were preventable.
The LTA said it has also assessed that there were “overall shortcomings in SMRT’s maintenance and monitoring regime”.
Members of Parliament and analysts told TODAY that they had expected the LTA to mete out the maximum fines.
Member of Parliament (MP) for Pioneer, Mr Cedric Foo, who chairs the Government Parliamentary Committee for Transport, pointed out that the disruptions had a massive impact on commuters.
Mountbatten MP Lim Biow Chuan also welcomed the move to channel the fines to the Public Transport Fund, rather than “into the State coffers”. “It’s a good idea that the fines are not seen as benefitting the Government but going to the needy to help with their transport needs,” said Mr Lim.
Both Mr Lim and Nee Soon Group Representation Constituency MP Lee Bee Wah felt that, beyond paying the fine, SMRT should do more to compensate commuters inconvenienced by the breakdowns.
Mr Lim suggested a “fare rebate or a fare holiday”, while Ms Lee said she would “like to see commuters get a more direct compensation”.
On concerns whether the fines would be passed on to commuters, Ms Lee said the Government would need to ensure that does not happen. But she noted that it would ultimately depend on the fare formula, which is currently under review.
Last week, at SMRT’s annual general meeting, its chairman Koh Yong Guan revealed, for the first time, the losses that SMRT incurred because of the disruptions.
The money went towards legal and professional fees – including for services engaged for the public inquiry – as well as rail-related studies and consultancy.
Analysts said the quantum of the fines would have been incorporated into forecasts on SMRT’s financial health.
CIMB Analyst Lee Wen Ching said the S$2-million fine work out to 1.4 per cent of SMRT’s forecast profit of S$143 million in the current financial year. “We view (the fine) as a one-off expense that should not eclipse the permanent elevation in the group’s cost structure arising from higher repairs and maintenance costs,” she said.
SMRT – TODAY
SMRT fined S$2 million
Money to be donated to Public Transport Fund to help needy; SMRT has 14 days to appeal
For its failures resulting in the December train disruptions, public transport operator SMRT was yesterday slapped with the maximum fine of S$2 million by the Government.
The disruptions on Dec 15 and 17 affected more than 200,000 commuters. In a statement announcing the penalties, the Land Transport Authority (LTA) said the money will be donated to the Public Transport Fund to help needy families with transport fares.
SMRT has 14 days to appeal, and the operator – which had already lost S$4.4 million because of the disruptions – declined to comment in response to TODAY’s queries on whether it is accepting the fines or planning an appeal.
Nevertheless, SMRT said in a statement that the LTA “has informed us … of its intention to fine us S$1 million for each of the two disruptions”.
SMRT reiterated that, since the incidents, it has been “implementing various initiatives to prevent recurrence and improve service reliability and incident response in collaboration with the LTA”.
It will implement further improvements and work closely with the LTA to enhance reliability and service levels, SMRT said.
According to the LTA, its investigations found that SMRT had “failed to meet its licensing obligations for the North-South and East-West Lines (NSEWL)”.
The regulator said: “It has failed, among other things, to exercise due diligence and vigilance expected of a public transport operator, and to maintain its network in good and efficient working condition.”
SMRT was also found to be in breach of the Operating Performance Standards for the NSEWL in both incidents.
The LTA also revealed that its internal investigation on the causes of the incidents is consistent with the findings of the Committee of Inquiry – in particular, that the incidents were preventable.
The LTA said it has also assessed that there were “overall shortcomings in SMRT’s maintenance and monitoring regime”.
Members of Parliament and analysts told TODAY that they had expected the LTA to mete out the maximum fines.
Member of Parliament (MP) for Pioneer, Mr Cedric Foo, who chairs the Government Parliamentary Committee for Transport, pointed out that the disruptions had a massive impact on commuters.
Mountbatten MP Lim Biow Chuan also welcomed the move to channel the fines to the Public Transport Fund, rather than “into the State coffers”. “It’s a good idea that the fines are not seen as benefitting the Government but going to the needy to help with their transport needs,” said Mr Lim.
Both Mr Lim and Nee Soon Group Representation Constituency MP Lee Bee Wah felt that, beyond paying the fine, SMRT should do more to compensate commuters inconvenienced by the breakdowns.
Mr Lim suggested a “fare rebate or a fare holiday”, while Ms Lee said she would “like to see commuters get a more direct compensation”.
On concerns whether the fines would be passed on to commuters, Ms Lee said the Government would need to ensure that does not happen. But she noted that it would ultimately depend on the fare formula, which is currently under review.
Last week, at SMRT’s annual general meeting, its chairman Koh Yong Guan revealed, for the first time, the losses that SMRT incurred because of the disruptions.
The money went towards legal and professional fees – including for services engaged for the public inquiry – as well as rail-related studies and consultancy.
Analysts said the quantum of the fines would have been incorporated into forecasts on SMRT’s financial health.
CIMB Analyst Lee Wen Ching said the S$2-million fine work out to 1.4 per cent of SMRT’s forecast profit of S$143 million in the current financial year. “We view (the fine) as a one-off expense that should not eclipse the permanent elevation in the group’s cost structure arising from higher repairs and maintenance costs,” she said.