Page 177 – SGX Yield Stock

TELCOs – CIMB

What to expect for 1Q12

We do not expect surprises in the 1Q12 results season. The usual themes are: 1) service revenue to remain muted;2) EBITDA margins to remain flat or up slightly; and 3) data to continue replacing voice.

We remain Neutral on Singapore telcos, maintaining our earnings forecasts and target prices. StarHub remains an Outperform and is our top Singapore/regional telco pick as we expect higher dividend payouts from its under-leveraged balance sheet.

Themes for 1Q12

We generally expect: 1) service revenue to remain muted as more Singaporeans travel out of the country during festive holidays, part of the seasonality; 2) EBITDA margins to improve on the back of lower advertising and marketing expenses and lower smartphone subsidies; and 3) data revenues to continue replacing voice revenues as a result of higher smartphone penetration rates.

Expectation for StarHub

We estimate earnings growth of 5-9% qoq for StarHub on margin improvements as lower subsidies added to lower advertising and marketing expenses during the quarter. Mobile revenues are also expected to rise on higher data take-up from higher smartphone penetration rates. We expect pay-TV revenue to remain stable qoq but increase yoy as StarHub raised its pricing by 4% in Aug 11.

Expectations for M1

We expect core profit to come in at S$37m-40m for 1Q12, with earnings contracting 1% or growing as much as 7% qoq. Revenue is expected to weaken on the back of lower handset sales (iPhone4S was launched in Oct 11) and lower service revenue. Meanwhile, we expect margins to improve from lower advertising and marketing spending and lower iPhone subsidies. M1 is scheduled to release its 1Q12 results on 6 Apr.

We will be previewing SingTel’s results separately.

kktan April 12, 2012 M1, SingTel, StarHub Comments Off

STEng – DBSV

Big boost to orderbook

• S$880m defence-related contract from new overseas Navy customer should renew faith in STE’s capabilities, reputation and demonstrate its resilient business model

• Recovery in the US economy will further benefit STE; US$ weakness is unlikely to be a concern in FY12

• Dividend yield remains healthy at 5.3%, upgrade to BUY with revised TP of S$3.40

Biggest contract win for Marine in recent years. ST Engineering’s shipbuilding and shiprepair arm ST Marine has won a EUR534.8m (S$880m) contract to design and build 4 patrol vessels (PVs) and provide associated logistic support for the Royal Navy of Oman. ST Marine will build four 75-metre PVs based on its proprietary Fearless Class of PVs. The project will commence immediately, with deliveries expected between 2Q 2015 and 3Q 2016.

Further strengthen track record in securing overseas customers for its defence sales, as the Sultanate of Oman is a new customer for STE. This is ST Marine’s second significant contract win for the year, following an order for 2 AHTS vessels from Swire Pacific Offshore in February, and brings total order wins YTD in 2012 to S$1.3bn. With S$3.2bn worth of new contracts secured in FY11, outstanding orderbook could reach a record level exceeding US$12.5bn, providing healthy earnings visibility in FY12/13F.

Upgrade to BUY. This contract win should help refocus investors’ attention on the resilient nature of STE’s business and away from the media hype about proceedings against ST Kinetics in India, which is immaterial to earnings and at worst, an opportunity loss. We revise up our FY12/13 earnings estimates by 1-2%. With the recent acquisition of NeraTel, STE’s growth trajectory looks set to be on track, especially as concerns over US$ fades and the US economy – to which STE has significant exposure – is showing signs of recovery. As such, we upgrade the stock to BUY with a revised TP of S$3.40, given the better earnings outlook, strong balance sheet and healthy dividend yield of over 5%.

kktan April 11, 2012 STEng Comments Off

SingTel – BT

De lights go out on SingTel’s e-mag store

SingTel’s magazine app store de!ite has become the telco’s first casualty among its digital offerings, shutting down less than two years after it was launched, BT has learnt. In response to BT’s queries, SingTel confirmed yesterday that the e-magazine store will be shuttered in June.

‘Following a review, de!ite will no longer be available from June 2012 while we explore alternative ways to offer digital magazines,’ a SingTel spokesman told BT.

The rolling up of the carpet had been in the works since earlier this year, when the magazine trade heard that de!ite would no longer be accepting new titles. Last week, another nail was driven into the coffin. One of the title owners received a termination letter for its e-magazine contract, which BT saw. The termination was to be effective 60 days from the date of the letter, which would coincide with the start of June.

As of yesterday, the de!ite app could still be downloaded on the iPad, with 42 titles available.

Launched in late-2010, de!ite had led SingTel’s charge into the app space as it sought to establish its cable-and-wire self in the ether of the digital realm. After de!ite was launched, other exclamation mark-bedecked and irregularly capitalised apps followed, like deF!ND and skoob – the book version of de!ite.

One of the publishers that used de!ite had found the experience wanting.

‘Some of their features, like the embedding of videos, didn’t work well. In an iPad magazine, even with a page-turner model, video ads should play within the magazine environment. However, when you embedded a video with de!ite, the reader would be taken out of the app and into a browser to play the video. That’s not embedding, as I understand it. And it’s disruptive,’ the publisher said.

The publisher noted, however, the de!ite had the best rates in town, in a time when its only competitor here was US-based Zinio.

While any costs incurred are bound to be but a smudge in the black ink of SingTel’s reserves, de!ite’s demise could have been a lesson in the brutal economics of online publishing.

A SingTel de!ite term sheet that BT saw gave the magazine title provider a 60 per cent cut of sales. de!ite also appears to use Apple’s in-app purchase mechanism for its app on Apple devices, which means that Apple could have taken another 30 per cent off copy sales, leaving a sliver of a margin for de!ite.

This 30 per cent levy has been a thorn in the side of other media behemoths – the Wall Street Journal and Amazon removed their in-app purchasing ability last year, while the Financial Times found a way around it by using an HTML5-based Web-only application, instead of a dedicated app.

Not all of the magazine trade is bad business. No one is sitting prettier in the e-magazine supply chain than Apple’s Newsstand, the wood-grained app on Apple devices that pulls together newspaper and magazine titles. According to a report by market research firm Distimo last month, Newsstand takes in US$70,000 a day on average from its top 100 titles on the iPad in the United States.

Its success is a partial reason for other e-magazine distributors’ failure. Newsstand creams 30 per cent off the top of magazine sales, before anyone else gets within sniffing distance.

This could sound the deathknell for smaller distributors that want to run Newsstand-based apps. BT’s sources say that an arm of a large publishing entity in Singapore has a magazine app that will run on Newsstand in the pipeline, but title owners are not giving it very good odds. This new service is offering title owners a 50-50 split of the remaining 70 per cent of sales that Newsstand lets it keep.

Effectively, title owners get only 35 per cent of the cover price if they go down this route – much less than the almost-60 per cent they get from hard copy sales and the 60 per cent that de!ite offered.

de!ite’s demise heralds a time when SingTel will have to face down corporations with which it previously had no quarrel, like Apple. Just last month, SingTel made its digital business a division in its own right, alongside its mobile business – a clear sign that it is quite prepared to return fire.

kktan April 10, 2012 SingTel Comments Off

STEng – BT

ST Marine bags 534.8m euro Oman navy deal

It will build patrol vessels, provide logistic support

SINGAPORE Technologies Engineering’s (ST Engineering’s) marine arm has secured a contract worth 534.8 million euros (S$880 million) from the Royal Navy of Oman (RNO).

The contract – to design and build four patrol vessels (PVs) and the provision of associated logistic support to the RNO – was awarded to Singapore Technologies Marine (ST Marine) by the Ministry of Defence of the Sultanate of Oman, through a competitive international tender.

In a filing to the Singapore Exchange (SGX) yesterday, ST Engineering said that ST Marine will build four 75-metre PVs, with the project commencing immediately.

The first vessel is expected to be delivered in Q2 2015, and the final vessel in Q3 2016.

Said ST Marine president Ng Sing Chan: ‘We are honoured to be entrusted by the RNO with this project. This is a significant contract to ST Marine and we are confident that we will live up to our reputation as a total naval solutions provider – from design to construction to logistics support and hopefully through life support for our customer’s vessels.’

The contract is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.

Just last week, ST Engineering announced that a 51:49 joint venture company (JVC) between ST Marine and Swedish Kockums AB respectively had been formed.

The two companies have had a long-standing partnership managing several contracts for the Republic of Singapore Navy’s (RSN’s) submarines.

Now a subsidiary of ST Marine, the JVC, known as Fortis Marine Solutions Pte Ltd, was formed with the primary objective of providing a ‘higher level in-country capability, in the refitting and life cycle support services for the submarine fleet of RSN’.

In addition, ST Engineering said last week that its electronics sector had secured new contracts worth about $100 million in the first quarter of this year.

These wins included contracts for rail electronics solutions and satellite communications systems.

ST Engineering shares fell five cents yesterday to close trading at $3.09 per share amid a market retreat in Asian bourses.

kktan April 10, 2012 STEng Comments Off