SMRT – OCBC
HOLDING FIRM DESPITE NEW DEVELOPMENTS
•LTA directs SMRT to start replacing third rail
•Slight increases in capex to come
•Share price remains stable and resilient
SMRT to start replacing third rail
Following a directive issued by the Land Transport Authority (LTA) yesterday, SMRT will begin replacing, with immediate effect, the power supplying third rail at locations where hairline cracks on some parts of the third rail joints are more visible. Although the presence of hairline cracks does not pose any immediate concerns, the move is more of a precautionary measure and the LTA has also reiterated the need for SMRT to closely monitor the condition of the third rail joints across its entire rail network.
Additional capex not accounted for
SMRT had previously disclosed a S$500m capital expenditure plan for FY13 with the excess from its usual annual budget (~S$100m-S$140m) related to a portion of the S$900m, seven-year plan to upgrade and renew aging MRT assets. According to SMRT’s work and time-line projections, the cost of the third rail replacement has not been included in this year’s estimates. While the final amount will only be known pending the outcome of its third rail checks, we expect to see a slight uptick in this year’s capital expenditure with the increase coming from an acceleration of costs from later years.
Share price has held steady since results
As for SMRT’s share price, it has held steady despite initial selling pressure following its weak FY12 results, and has managed to outperform the FTSE STI Index over the past two and a half weeks (-0.9% vs. -5.3%). While the COI continues its public hearings, we deem the possibility of further sharp sell-offs to be remote as SMRT services and its operational cash flows remain in demand and resilient.
Maintain HOLD
We reiterate our belief that SMRT will not have difficulty addressing its higher capital outlay requirements given its existing net cash position and available MTN programme, and leave our conservative 60% PATMI dividend payout ratio estimates unchanged. Maintain HOLD with a fair value estimate of S$1.71.
TELCOs – Phillip
Results Season Takeaways
Sector Overview
The Telecommunications Sector under our coverage consists of SingTel, Starhub & M1. Starhub (STH) and M1 are pure plays to the Singapore market, while SingTel (ST) has exposure to the Asia-Pacific region through its regional mobile associates.
• Positive earnings for SingTel & Starhub
• Starhub is still the highest yielding Telco counter
• SingTel dominates fibre market share
• Neutral on SingTel & Starhub, Reduce on M1
Earnings Surprise?
Starhub’s results beat our expectations for the second consecutive quarter with profit increase of 28% y-y. While revenue increased by merely 6%, better cost control due to lower marketing and promotion expenses improved Starhub’s profitability. M1’s net income declined by 5% y-y as operating expenses outpaced the relatively stagnant top line growth. Adjusting for the effects of a one off gain from an exceptional S$270mn tax credit received, SingTel’s results were in line.
Operational Trends
Starhub & M1 reported stagnant Postpaid Mobile subscriber base in the quarter. SingTel added 30k subscribers, but reported a dip in Postpaid ARPU in the quarter. For the PayTV market, SingTel added 15k subscribers and increased its market share to c.40%. By our estimate, SingTel dominated the fibre broadband space with a market share of 60%, with M1 ranking second with a 23% share. While Starhub does not disclose its fibre base, the company probably has a lower fibre subscriber count as it could still offer high speed MaxOnline plans on its cable network.
Recommendation
Fundamentally, we rate SingTel & Starhub as Neutral and have a Reduce rating on M1. We continue to prefer SingTel for its growth potential outside of Singapore and cheaper valuation over its local peers.
SingTel – BT
Bharti close to buying Qualcomm unit: sources
Qualcomm Inc is asking Bharti Airtel Ltd, India's largest mobile-phone operator, to pay about 50 billion rupees (S$1.16 billion) for its Indian unit as the two companies seek to conclude talks in the next two weeks, according to two people with knowledge of the matter.
Bharti may purchase the unit in instalments over two years, the people said, declining to be identified as the details are private. Under the plan, Bharti would initially purchase a 26 per cent stake in the unit, currently held by Tulip Telecom Ltd and Global Holding Corp, and Qualcomm will own 51 per cent of the division for at least two years after that, the people said.
Qualcomm, the biggest maker of mobile-phone chips, bought frequency licences in cities including New Delhi and Mumbai in June 2010, paying 49.1 billion rupees for spectrum that allows handset users to download video at greater speeds. The San Diego, California-based company was allocated spectrum this month, two years after paying for the airwaves, people with knowledge of the matter said on May 8.
Mobile-phone operators in India including Bharti Airtel and Vodafone Group Plc are trying to boost revenue by selling services such as video streaming as incomes rise. The number of smartphones sold in India almost doubled last year to 11 million, according to data compiled by Bloomberg.
SPAusNet – BT
SP AusNet to raise A$434m in offer to shareholders
SP AusNet, the Australian electricity distributor 51 per cent owned by Singapore Power, will raise A$434 million (S$547.2 million) in a share offer to existing investors to help fund expansion, Bloomberg reported.
Separately, the company also said that the Supreme Court of Victoria has formally approved the compensation offered in a bushfire class action in Australia.
As for the share offer, Bloomberg reported that SP AusNet will offer investors three shares for every 20 that they hold at A$1 apiece. That is an 11 per cent discount to yesterday's closing price of A$1.125.
SingPower will take its 51 per cent entitlement with the balance to be underwritten by Macquarie Group and UBS AG.
SingTel – TODAY
Bharti Airtel in money laundering probe
The authorities are investigating top mobile phone carrier Bharti Airtel under its money laundering and foreign exchange rules in a probe related to the grant of airwaves a decade ago.
Bharti shares fell as much as 5.1 per cent during trade yesterday after Minister of State for Finance S S Palanimanickam told Parliament that the Directorate of Enforcement was investigating the company. The shares pared most losses to close 1.2 per cent down.
Indian mobile market leaders Bharti and Vodafone’s local unit are not involved in a massive scandal over alleged below-market-price sale of lucrative telecoms licences in 2008 that has rocked the once-booming sector. They are, however, being investigated over airwave grants during 2001 and 2002.
Bharti, controlled by India’s fifth-richest man Sunil Mittal, said in a statement it was cooperating with investigators. It did not give the reason for the investigation, but a company source told Reuters that it was related to the probe over airwave grants.
“Bharti Airtel maintains the highest standards of corporate governance and regulatory compliance. We have already provided all relevant details asked for by the relevant authorities in this matter and will be happy to cooperate further,” the company said in the statement.
The Minister, who was replying to questions from a lawmaker through a written statement, declined to give further details.
Bharti, nearly one-third owned by South-east Asia’s top phone company, SingTel, operates in 20 countries across Asia and Africa and is the world’s fifth-biggest mobile phone carrier by subscribers. India is its biggest market.
Shares in Bharti, valued at more than US$21 billion (S$26 billion), lost 3.6 rupees (S$0.08) to close at 304.15 rupees, after hitting an intra-day low of 292.05 rupees.
A series of corruption scandals during Prime Minister Manmohan Singh’s second term have rocked the government and businesses, sparking street protests by anti-graft activists and spurring a flurry of investigations of companies.
The scandal over the 2008 licence grant has ensnared prominent politicians and high-profile corporate executives. The police have charged a total 19 people and six companies in the scandal, which the CAG has estimated has cost the exchequer as much as US$34 billion in lost revenue.
Last November, the police conducted searches at offices of Bharti and Vodafone India seeking details of airwaves allocated to them in 2001 and 2002 by a government then led by the Bharatiya Janata Party (BJP), now in opposition.
The investigation is continuing and police are yet to file any formal charge against the companies. Both Bharti and Vodafone India have denied any wrongdoing.
The BJP had attacked the Congress-led government over the corruption scandals and forced a near-shutdown of Parliament for much of last year. The BJP had alleged that the government was trying to “divert the attention” by probing spectrum grants during its term in power. REUTERS