SATS – OCBC
A REASONABLE START TO FY13
•Strong passenger growth in Changi
•Air freight volumes down
•Minimal contribution from MBCCS
Passengers and aircraft up but freight down at Changi
In Changi Airport Group’s (CAG) recently-announced operating statistics for Apr 2012, passenger movements at the airport increased 13% YoY to 4.2m on the back of a 9% YoY climb in aircraft movements to 26,410. However, air freight volume continues to slide, falling 5% YoY to 148,243 tonnes. Despite CAG’s mixed operating statistics for Apr 2012, it bodes well for SATS Ltd (SATS) going into the first month of FY13, since ~70% of its Gateway services revenue is derived from passenger and aircraft handling.
Air freight volumes also down in Hong Kong
Hong Kong International Airport (HKIA) also released lower freight volume in Apr 2012, with cargo handled at HKIA easing 1% YoY to 327,000 tonnes. With the fall in SATS’ share of associates’ profit in FY12 primarily attributed to the fall in freight volumes in Hong Kong and Vietnam, the latest freight number from HKIA should mean SATS’ share of associates’ profit is likely to remain depressed.
First cruise ship at MBCCS
Separately, The Business Times reported that the Marina Bay Cruise Centre Singapore (MBCCS), jointly operated by Creuers del Port de Barcelona S.A. and SATS, will welcome its first cruise ship, the Royal Caribbean International’s Voyager of the Seas, on 26 May 2012. An Oasis-class cruise ship, the Voyager of the Seas will be the largest ship to homeport in Asia in 2012 and, short of docking at a container port, it can only dock at MBCCS in Singapore due to its size. However, SATS expects revenue from MBCCS to grow to ~S$10m only in FY16 or FY17. Thus, MBCCS is unlikely to see meaningful contribution to SATS’ financials in the foreseeable future.
Maintain HOLD
We maintain our fair value estimate of S$2.55/share and HOLD rating on SATS.
TELCOs – OCBC
1QCY12 REVIEW – OVERWEIGHT
•Stable 2012 outlook,
•But margins pressure exists
•Defensive earnings, attractive yields
1QCY12 results were in line
All three telcos recently reported 1QCY12 results which were in line with our forecasts. M1 and SingTel earnings were either spot on or within 2% of our estimates. Although StarHub’s earnings were 13.2% above our forecast, we note that the boost came from higher NBN roll-out adoption grants and higher amortised income; but EBITDA margin of 32.2% was in line with our forecast.
Review of Singapore mobile operations
No change in status quo in the post-paid mobile market – SingTel dominated with a ~47% share, followed by StarHub ~28% and M1 ~26%. Overall, the post-paid subscriber base grew by 38k QoQ to 4067k, with the bulk coming from SingTel (+30k). However, the 0.9% growth was the slowest since Mar 09; and could continue to slow as users shift towards multi-SIM plans for their mobile devices from dongles. Data as a percentage of ARPU is hovering around 37-42%, up from around 35-40% in 1QCY11; this as non-voice communication continues to gain popularity among smartphone users.
Stable 2012 outlook
Going forward, all the three telcos expect their Singapore operations to remain stable or show modest growth, buoyed by the increasing mobile data usage and also the NBN roll-out which is nearing completion. However, EBITDA margin outlook continues to remain fairly muted; and any boost from LTE is not likely to materialize substantially in 2012. Nevertheless, thanks to their strong cashflow generative businesses, the telcos have kept their dividend payout guidance, thus keeping their yields attractive.
Maintain OVERWEIGHT
With the exception of StarHub (+11% YTD), the other two stocks have underperformed (M1 -1.6%, SingTel -0.6%) versus the STI’s 5.2% gain. But with markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the risk-adverse investors. Maintain OVERWEIGHT. Our pick in the sector is M1.
TELCOs – CIMB
Review of 1Q12
1Q12 telco results reflected the usual seasonal weakness. Key features were: 1)subdued service revenue;2) muted sector margins;and 3)a rebound in ARPUs forfixed broadband.SingTel continued to gain market share in broadband and pay TV, at StarHub’s expense.
All three telcos’ results met our forecasts. Maintain Neutral on the sector as we see no major catalysts. StarHub (Outperform) is our top pick as its net debt/EBITDA is at a multi-year low, ripe for the payment of higher dividends.
SingTel continues to gain share
While its share of mobile revenue peaked in 4Q12, SingTel gained share in fixed broadband and pay TV. This reflects its strategy of garnering more customers with the view of selling them more services in future.
Gearing fell
Gearing improved for all three, with StarHub’s falling to 0.49x, the lowest since 2Q06. Although StarHub has acknowledged that its gearing is very low, it plans to maintain its dividend payout of 20cts in 2012 and does not intend to go for capital management. We believe StarHub is over-conservative and should loosen up its dividend purse strings
Service revenue dipped on seasonality
Overall performances were subdued because of seasonality. Industry revenue dipped 1.3% qoq (but rose 3.8% yoy), due to seasonality and lower equipment sales at StarHub and M1. SingTel’s and StarHub’s service revenue weakened qoq while M1’s grew slightly, thanks to subscriber growth.
Stable and muted guidance
SingTel expects revenue to grow by low single digits with margins to ease. Its capex guidance does not reflect the cost of 4G spectrum in Australia which will be auctioned at end-2012.
StarHub has kept to its 2012 guidance of low-single-digit revenue growth and flat EBITDA margins. To our disappointment, it has maintained its DPS, which we think should be raised.
M1 sounded more positive, expecting its momentum in 1Q to continue through the year, mainly led by mobile data and fixed services.
STEng – DBSV
A boost to P2F conversion pipeline
A330 P2F programme on track. ST Engineering announced the finalisation of agreements with Airbus and its parent EADS to collaborate on the A330 Passenger-to-Freighter (P2F) conversion project. The initial agreement had been announced during the Singapore Airshow earlier in February. Under the final agreement, ST Engineering will invest about Euro 110.5m (S$186.6m) for a 35% effective stake in EADS EFW, the P2F conversion arm of EADS. EADS will hold the remaining 65% and will also have a call option over STE’s 35% stake during the engineering development phase of the A330P2F programme. The call option will expire when the engineering work is successfully delivered to EADS EFW. The engineering phase is expected to commence by end-2012.
ST Aerospace will be the engineering lead. ST Aerospace, with its engineering design experience, will be the lead during the engineering and development phase, while EADS will be the lead in terms of actual modifications and marketing. Most of the conversion works will be done at EADS EFW’s facility in Dresden, Germany, with the remainder coming to a dedicated ST Aerospace facility. The first converted aircraft is expected to come into service by 2016, with airlines like Qatar Airways already showing an interest in the programme. The larger A330-300P2F will be targeted at cargo integrators, while the A330-200P2F will be optimised for higher-density freight and longer-range performance.
Expands capabilities, potentially boosts associate profits. If this programme is successful, ST Aerospace will be the first independent MRO to have expertise in Airbus A330 conversions, and potentially other members of the Airbus family in future. This adds to STE’s industry-leading range of P2F capabilities, on top of its successful MD-11, B757 and B767 P2F programs running currently. EADS EFW will also serve as ST Aerospace’s European MRO center, which fills the only major gap in ST Aerospace’s global MRO footprint. While the investment is not likely to yield returns in the short term, STE’s strong balance sheet allows it the luxury to wait for associate profits to come in when the project is commercialised. EADS EFW has to date converted more than 170 freighters for 39 global customers. Its other projects include A300-600P2F and A310P2F. No change to our earnings estimates for FY12/13F. Maintain BUY with TP S$3.40.
STEng – DBSV
A boost to P2F conversion pipeline
A330 P2F programme on track. ST Engineering announced the finalisation of agreements with Airbus and its parent EADS to collaborate on the A330 Passenger-to-Freighter (P2F) conversion project. The initial agreement had been announced during the Singapore Airshow earlier in February. Under the final agreement, ST Engineering will invest about Euro 110.5m (S$186.6m) for a 35% effective stake in EADS EFW, the P2F conversion arm of EADS. EADS will hold the remaining 65% and will also have a call option over STE’s 35% stake during the engineering development phase of the A330P2F programme. The call option will expire when the engineering work is successfully delivered to EADS EFW. The engineering phase is expected to commence by end-2012.
ST Aerospace will be the engineering lead. ST Aerospace, with its engineering design experience, will be the lead during the engineering and development phase, while EADS will be the lead in terms of actual modifications and marketing. Most of the conversion works will be done at EADS EFW’s facility in Dresden, Germany, with the remainder coming to a dedicated ST Aerospace facility. The first converted aircraft is expected to come into service by 2016, with airlines like Qatar Airways already showing an interest in the programme. The larger A330-300P2F will be targeted at cargo integrators, while the A330-200P2F will be optimised for higher-density freight and longer-range performance.
Expands capabilities, potentially boosts associate profits. If this programme is successful, ST Aerospace will be the first independent MRO to have expertise in Airbus A330 conversions, and potentially other members of the Airbus family in future. This adds to STE’s industry-leading range of P2F capabilities, on top of its successful MD-11, B757 and B767 P2F programs running currently. EADS EFW will also serve as ST Aerospace’s European MRO center, which fills the only major gap in ST Aerospace’s global MRO footprint. While the investment is not likely to yield returns in the short term, STE’s strong balance sheet allows it the luxury to wait for associate profits to come in when the project is commercialised. EADS EFW has to date converted more than 170 freighters for 39 global customers. Its other projects include A300-600P2F and A310P2F. No change to our earnings estimates for FY12/13F. Maintain BUY with TP S$3.40.