SingTel – CIMB
Selling down Far EasTone
SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.
Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.
What Happened
SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.
What We Think
This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.
What You Should Do
Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.
SingTel – CIMB
Selling down Far EasTone
SingTel has sold its entire 3.98% stake in Far EasTone for S$339m or S$0.02/share. This is the first time it has sold any of its assets, in our memory. We view this positively as FET was purely a passive investment; the impact on SingTel is insignificant.
Proceeds will only reduce its net debt/EBITDA by 0.05x to 1.06x, and does not raise the likelihood of a special dividend. No change to our Neutral rating, SOP target price or estimates. Switch to StarHub for potential upside to already-attractive dividends.
What Happened
SingTel has sold its entire 3.98% interest in Taiwan’s Far EasTone Telecommunications for S$339m cash or S$0.02/share. It will recognise a gain of S$118m in 1QFY13.
What We Think
This is mildly positive but does not move the needle much. The cash raised will only nudge its net debt/EBITDA down by 0.05x to 1.06x, not sufficient for SingTel to pay special dividends. SingTel last paid a special DPS of 10cts in 4QFY11 when its net debt/EBITDA fell to 0.8x, substantially below its target of 1.5x. No change to our earnings estimates as the sale is close to the S$361m we have imputed in our SOP valuation.
What You Should Do
Switch to StarHub for potential upside to its already-attractive dividends. SingTel lacks re-rating catalysts, in our opinion. It faces headwinds from a weakening Indian rupee, regulatory risks in India and stiff competition in Australia. However, risks should be mitigated by its modest dividend yields of 5-6%.
SMRT – DMG
Announces S$900m of upgrading plans
900m to be rolled out over eight years. SMRT has announced a planned renewal and preventive maintenance across the MRT system which is estimated to cost S$900m. It intends to address the needs of an ageing 25 year old MRT system, on top of the current maintenance regime for the tracks and trains. The cost sharing arrangements between SMRT and LTA are currently in discussion, and this program is expected to roll out over eight years.
Costs borne by SMRT still unclear. Though we do not know SMRT’s share of the costs at this point in time, we think that the impact on SMRT may not be that significant. The simple average of the S$900m amounts to S$113m a year, while our sensitivity analysis shows that if our FY13 base case capex increases by S$100m (or 40%), SMRT’s FY13 PAT would only decrease by 6%. Moreover, we see a possibility of LTA bearing the bulk of the S$900m cost, given its recent efforts to more actively engage in Singapore’s public transport matters (as shown from the S$1.1b Bus Services Enhancement Fund announced in the 2012 budget). Maintain NEUTRAL with TP of S$1.73.
SMRT – AmFraser
SMRT plans $900m in rail maintenance, upgrade Bulk is for renewal, replacement; sum is on top of $30m annual maintenance
April hasn't been a good month for SMRT with five breakdowns and an ongoing inquiry into earlier disruptions in December, so the rail operator plans to spend an estimated $900 million in additional maintenance and upgrading to make the ride a lot smoother.
Between now and 2019, nine areas have been identified for the upgrade to ensure a safe and reliable rail system, said Tan Ek Kia, SMRT Corp's executive director and interim chief executive officer.
"The bulk will be for renewal and replacement, with some brought forward instead of maintaining it, for example, the train‐borne electronic cards," he said yesterday at a media briefing.
The system upgrade over the next eight years will be implemented on top of the usual $30 million‐plus annual maintenance programme for the North‐South and East‐West MRT lines.
Mr Tan stressed that the $900 million is an estimate and discussions with the Land Transport Authority are necessary regarding a "costsharing
arrangement".
According to SMRT Corp senior vice‐president for communications and services Goh Chee Kong, the plans to install wheel impact load detection systems and positive‐locking rail claws, and re‐sleeper and re‐signal the train lines, among others, have always been there.
"They are ongoing. But after the disruptions in December, we decided to bring them forward," said Mr Goh.
On Dec 15 and 17 last year, two massive MRT breakdowns affected 210,000 commuters and resulted in the ongoing Committee of Inquiry (COI). The COI, which started on April 16, is expected to last six weeks.
SMRT – Lim and Tan
• The $900 mln to be spent over 8 years to deal with the ageing rail infrastructure ($112.5 mln pa) will likely unnerve investors first. And merely saying it will be co-funded with LTA does not help either.
• What would be helpful would be for the authorities to clarify that LTA will be responsible for the infrastructure replacements, and SMRT for replacing what needs to be replaced of the operating assets.
• Assuming 50-50 split, which is too simplistic, but which works out to $56 mln a year for SMRT.
• Point is SMRT presently spends about $30 mln a year on repairs and maintenance.
• We have earlier downgraded SMRT to a HOLD.