SATS – Kim Eng
Cruise or Fly, Still a Buy
Tourism boom in Singapore. Recent visitor statistics have shown an encouraging uptrend despite the volatile economic situation stemming from the European debt crisis. Tourists have not only continued to make Singapore one of their preferred destinations (2011 visitor arrivals +13% YoY), but also increased their spending, leading to an 18% YoY growth in tourist receipts to SGD22.3b for 2011. Together, these figures support the notion of a sustainable tourism boom that Singapore is currently experiencing and which SATS is well-placed to benefit from.
Aviation passengers dominate growth. The aviation visitor segment has shown standout growth of 15% YoY to breach the 10m visitor mark for 2011, backed by the proliferation of budget airline flights to-and-from Singapore. SATS’ key market segment remains the aviation-related space (84% of FY3/12 revenue), and with the Singapore Tourism Board forecasting a further 10% increase in visitor arrivals for 2012, the outlook remains rosy for the company.
Cruise terminal in infancy but a good complement. SATS’ JV with Creuers (SATS-Creuers) to operate Singapore’s newest Marina Bay Cruise Centre welcomed its first vessel on 26 May 2012. While we believe that significant earnings contributions will only accrue to SATS in the medium term, we remain positive that this foray into the cruise terminal operating business will only serve to widen its expansion capabilities within the gateway services space.
Maintain BUY, don’t miss the bumper dividend. Though mindful of the risks ahead for SATS, our optimism continues to be buoyed by its resilient earnings, healthy balance sheet and attractive dividend yields. We maintain our BUY recommendation and target price of SGD3.04, based on 17x FY3/13F earnings. Investors buying in now stand to enjoy the bumper dividend of SGD0.21 per share, which goes ex-dividend on
31 July.
SATS – Kim Eng
Cruise or Fly, Still a Buy
Tourism boom in Singapore. Recent visitor statistics have shown an encouraging uptrend despite the volatile economic situation stemming from the European debt crisis. Tourists have not only continued to make Singapore one of their preferred destinations (2011 visitor arrivals +13% YoY), but also increased their spending, leading to an 18% YoY growth in tourist receipts to SGD22.3b for 2011. Together, these figures support the notion of a sustainable tourism boom that Singapore is currently experiencing and which SATS is well-placed to benefit from.
Aviation passengers dominate growth. The aviation visitor segment has shown standout growth of 15% YoY to breach the 10m visitor mark for 2011, backed by the proliferation of budget airline flights to-and-from Singapore. SATS’ key market segment remains the aviation-related space (84% of FY3/12 revenue), and with the Singapore Tourism Board forecasting a further 10% increase in visitor arrivals for 2012, the outlook remains rosy for the company.
Cruise terminal in infancy but a good complement. SATS’ JV with Creuers (SATS-Creuers) to operate Singapore’s newest Marina Bay Cruise Centre welcomed its first vessel on 26 May 2012. While we believe that significant earnings contributions will only accrue to SATS in the medium term, we remain positive that this foray into the cruise terminal operating business will only serve to widen its expansion capabilities within the gateway services space.
Maintain BUY, don’t miss the bumper dividend. Though mindful of the risks ahead for SATS, our optimism continues to be buoyed by its resilient earnings, healthy balance sheet and attractive dividend yields. We maintain our BUY recommendation and target price of SGD3.04, based on 17x FY3/13F earnings. Investors buying in now stand to enjoy the bumper dividend of SGD0.21 per share, which goes ex-dividend on
31 July.
SPH – OCBC
RESILIENT RETAIL MALLS
•Retail rentals to be relatively resilient
•Growth in retail landlord segment
•Further pressure on ad revenues likely
Resilient retail mall landlord business
In the face of an increasingly uncertain macro environment, we expect SPH’s retail landlord business to provide a stable counterweight to its core print business which is expected to face pressure from dipping ad demand. The retail business, comprising of the Paragon and the Clementi Mall, contributed S$47.9m of profits before tax (PBT) in 1HFY12, making up a respectable 22% of total PBT. Given the limited retail pipeline in the Orchard area over FY12-13 (est. 543k sq ft net floor area), we expect rentals at the Paragon to stay relatively resilient. In addition, we expect the strategic location of the Clementi Mall, now fully leased, at Clementi MRT station and strong foot traffic of 60k daily to underpin rental levels.
Expect growth in retail mall segment
Going forward, SPH’s retail landlord business is set to grow with the expected completion of the Sengkang commercial development by 2016. Won in a tender in Jan 2012 for S$328m, the 99-year Sengkang site is expected to yield a retail mall with ~284k sq ft GFA which would add another suburban mall similar to the size of Clementi Mall into SPH’s retail portfolio. We also believe that SPH’s 70:30 partnership with UEL would create considerable synergy between UEL’s property development experience and SPH’s mall management capabilities. Moreover, with group investible funds at S$0.9b as of end Mar 2012, we believe there is sufficient capacity for SPH to allocate additional capital into its retail strategy ahead.
Maintain BUY at unchanged S$4.05 fair value estimate
For the current fiscal year, however, we expect to see sustained downward pressure on SPH’s core print advertisement and circulation business as demand softens in an increasingly uncertain macro environment. In 1HFY12, we saw newspaper ad revenue dip 2.3%, driven mostly by falling classified ad demand which fell 6.5%. On the other hand, newsprint costs are expected to stay relatively stable ahead and we believe SPH has some flexibility in managing staff costs should the top-line weaken further. Maintain BUY with an unchanged fair value estimate of S$4.05.
SPH – OCBC
RESILIENT RETAIL MALLS
•Retail rentals to be relatively resilient
•Growth in retail landlord segment
•Further pressure on ad revenues likely
Resilient retail mall landlord business
In the face of an increasingly uncertain macro environment, we expect SPH’s retail landlord business to provide a stable counterweight to its core print business which is expected to face pressure from dipping ad demand. The retail business, comprising of the Paragon and the Clementi Mall, contributed S$47.9m of profits before tax (PBT) in 1HFY12, making up a respectable 22% of total PBT. Given the limited retail pipeline in the Orchard area over FY12-13 (est. 543k sq ft net floor area), we expect rentals at the Paragon to stay relatively resilient. In addition, we expect the strategic location of the Clementi Mall, now fully leased, at Clementi MRT station and strong foot traffic of 60k daily to underpin rental levels.
Expect growth in retail mall segment
Going forward, SPH’s retail landlord business is set to grow with the expected completion of the Sengkang commercial development by 2016. Won in a tender in Jan 2012 for S$328m, the 99-year Sengkang site is expected to yield a retail mall with ~284k sq ft GFA which would add another suburban mall similar to the size of Clementi Mall into SPH’s retail portfolio. We also believe that SPH’s 70:30 partnership with UEL would create considerable synergy between UEL’s property development experience and SPH’s mall management capabilities. Moreover, with group investible funds at S$0.9b as of end Mar 2012, we believe there is sufficient capacity for SPH to allocate additional capital into its retail strategy ahead.
Maintain BUY at unchanged S$4.05 fair value estimate
For the current fiscal year, however, we expect to see sustained downward pressure on SPH’s core print advertisement and circulation business as demand softens in an increasingly uncertain macro environment. In 1HFY12, we saw newspaper ad revenue dip 2.3%, driven mostly by falling classified ad demand which fell 6.5%. On the other hand, newsprint costs are expected to stay relatively stable ahead and we believe SPH has some flexibility in managing staff costs should the top-line weaken further. Maintain BUY with an unchanged fair value estimate of S$4.05.
STEng – Phillip
Another Growth Engine
Company Overview
ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.
• US$49.7mn for certain assets of Pemco
• 320k sqm of space, 1.4mn manhours of capacity, 2 hangars
• B737 freighter conversion certificates acquired
• 16% increase in Group capacity
• Maintain Accumulate with unchanged TP of S$3.37
What is the news?
STE announced the acquisition of certain assets of Pemco as part of a bankruptcy proceeding. STE’s US arm VT Aerospace would assume liabilities of US$6.2mn and pay a consideration of US$49.7mn for the Tampa facility and certain assets of PEMCO. The acquisition is contingent upon the approval by the US Bankruptcy Court and is expected to be completed in July 2012. The facility occupies 320k sqm of hangar and office space at Tampa International Airport in Florida and is seen as a gateway to Latin America. STE would also acquire the Boeing B737 freighter conversion Supplemental Type Certificates from Pemco in this deal.
How do we view this?
We view this development positively as it would further extend STE’s lead as the world’s largest MRO player. This deal would increase STE’s heavy maintenance capacity by 16% and increase its exposure to the fast growing Latin American region. While it is difficult to judge as to whether STE overpaid for the assets due to the lack of financial disclosures, bankruptcy proceedings usually throw up assets at a reasonable price.
Investment Actions?
We kept our forecasts unchanged and maintain our Accumulate rating on STE. STE’s earning yield spreads and P/E multiples remain below historical averages, reflecting undervaluation in this defensive stock, in our view.