SingTel – Kim Eng
Margins to remain under pressure
Downgrade to Hold. We expect SingTel’s EBITDA margin to remain under pressure for the next few quarters as the telco focuses on building its mobile customer base aggressively in Singapore. While it expects long-term benefits, the costs related to its build-up of mobile device content, as well as subscriber acquisition and retention, are expected to stay high, thus eating into margins.
3Q12 results below expectations. SingTel’s 3QFY Mar12 results fell short of expectations, reflecting higher acquisition and retention costs on a strong mix of smartphones and tablets in Singapore and weak associate contributions. However, we had expected this, following similar trends in M1’s results. The only question was the extent of the damage to margins, which was quite severe in 3QFY Mar12, down to 32.7% from 34.5% in the previous quarter and 35.9% a year ago.
Margin decline to continue. SingTel has seen its EBITDA margin decline for four quarters now. However, there is likely to be further downside in the short term. In particular, management mentioned that it will step up its level of aggression to acquire smartphone and fibre customers as NGNBN rollout progresses. In the long run, it hopes to reap the benefits of upselling customers on a wider range of services but the short-term, impact on margins will be negative.
Older and wiser on BPL but… The better news is SingTel is unlikely to want to be perceived as Mister Moneybags again when bidding for the 2013-16 seasons of the BPL starting in March 2012. According to Mr Allen Lew, SingTel’s Singapore CEO, it will be “a bit wiser on this”. However, cross-carriage notwithstanding, management still views BPL as a key piece of content. Depending on the dynamics with the content owner, SingTel may not have a choice but to bid aggressively.
Lack of catalysts. While we do not expect any positive catalysts in the near future, we also do not anticipate any event that could pull the rug from below SingTel’s earnings, which should remain fairly resilient. We value SingTel at $2.95, or 13x FY Mar12 earnings, similar to the region’s integrated telcos as well as its own historical average PER.
ComfortDelgro – Phillip
Slightly below expectations
Company Overview
ComfortDelGro Corporation (CDG) is a land transport conglomerate with businesses across various business segments and geography. The bus and taxi businesses are the largest profit contributors for the Group.
• Net income increased 3.1%y-y
• Higher fuel expense, staff cost & depreciation expense resulted in a 0.4ppt decline in EBIT margin
• Final DPS of 3.30cents proposed
• Maintain Buy with revised TP of S$1.66
What is the news?
CDG announced a 6.4% and 3.1% increase in sales and net income for the year. However, margin pressures from higher fuel expense, staff cost and depreciation expense resulted in a 0.4ppt decline in EBIT margin. While revenue continue to increase sequentially, 4QFY11 net profits fell by 18%q-q, due to a c.S$10mn decline in operating profits for both the taxi and bus businesses. Final dividends of 3.30cents proposed, translating to a full year payout ratio of 53.3%.
How do we view this?
The results for the year were slightly weaker than expected. Key variances from our 4QFY11 estimates were 1) Operating losses of S$5mn at SBST’s bus business; 2) c.3.4% decline in average passenger rail fare; 3) operating losses at China’s bus business. Looking ahead to FY12E, we believe that rail business would likely register a decline in margins as the company increase staff headcount in preparation for the launch of Downtown Line (DTL) at the end of FY13E.
Investment Actions?
We revised our forecasts down by 7.9-11.4% for the next 2 years and lowered our target price to S$1.66 based on 15X FY12E EPS. CDG remains undervalued at the current market price. Maintain Buy.
ComfortDelgro – Phillip
Slightly below expectations
Company Overview
ComfortDelGro Corporation (CDG) is a land transport conglomerate with businesses across various business segments and geography. The bus and taxi businesses are the largest profit contributors for the Group.
• Net income increased 3.1%y-y
• Higher fuel expense, staff cost & depreciation expense resulted in a 0.4ppt decline in EBIT margin
• Final DPS of 3.30cents proposed
• Maintain Buy with revised TP of S$1.66
What is the news?
CDG announced a 6.4% and 3.1% increase in sales and net income for the year. However, margin pressures from higher fuel expense, staff cost and depreciation expense resulted in a 0.4ppt decline in EBIT margin. While revenue continue to increase sequentially, 4QFY11 net profits fell by 18%q-q, due to a c.S$10mn decline in operating profits for both the taxi and bus businesses. Final dividends of 3.30cents proposed, translating to a full year payout ratio of 53.3%.
How do we view this?
The results for the year were slightly weaker than expected. Key variances from our 4QFY11 estimates were 1) Operating losses of S$5mn at SBST’s bus business; 2) c.3.4% decline in average passenger rail fare; 3) operating losses at China’s bus business. Looking ahead to FY12E, we believe that rail business would likely register a decline in margins as the company increase staff headcount in preparation for the launch of Downtown Line (DTL) at the end of FY13E.
Investment Actions?
We revised our forecasts down by 7.9-11.4% for the next 2 years and lowered our target price to S$1.66 based on 15X FY12E EPS. CDG remains undervalued at the current market price. Maintain Buy.
SingTel – CIMB
Lacking catalysts
We are little less optimistic on SingTel after its conference call today as the negatives pileup: rivalry in Australia’s mobile sector remains stiff and competition could intensify in the Philippines. We also see Australia’s fixed broadband competition heat up due to the NGNBN.
SingTel intends to retain its rights to carry the BPL but expects to be more rational with its bid. We downgrade SingTel to Neutral from Outperform, maintain our earnings estimates but tweak our SOP-based target price given its rising risks and CIMB’s rising optimism on the stock market.
What Happened
SingTel held a conference call after its 3QFY12 results. We are a little more negative on the stock as we think fixed broadband competition in Australia may intensify ahead of the introduction of the next generation broadband (NGNBN), similar to what happened in Singapore. Competition in the Australian mobile space remains intense with no sign of a let-up.
In Singapore, it expects to be more rational in bidding for the rights to the 2013-15 BPL seasons in 2H12. We believe SingTel intends to win the rights to this content, although it will be non-exclusive, given that is the anchor content for its pay TV.
We expect SingTel to continue to aggressively acquire both mobile and fixed broadband customers given its view to upsell them with content and applications down the road. It has a commanding 63% market share in fibre broadband.
What We Think
We think risks are rising for SingTel. Competition in Australia’s fixed broadband could intensify with the migration to NBN, similar to what happened in Singapore. StarHub’s broadband revenue and ARPU declined ahead of the launch of NGNBN as it jostled with SingTel for market share. In the Philippines, we think competition will be intense despite industry consolidation as Globe and PLDT slug it out for market share. Lastly, the Indian rupee remains weak.
What You Should Do
We advocate switching from SingTel to StarHub which we think will undertake a capital management in 2H12. We think SingTel’s earnings will likely be flattish in the coming quarters with growth in Singapore offset by competitive pressures in Australia, the Philippines and currency weakness in India.
SingTel – CIMB
Lacking catalysts
We are little less optimistic on SingTel after its conference call today as the negatives pileup: rivalry in Australia’s mobile sector remains stiff and competition could intensify in the Philippines. We also see Australia’s fixed broadband competition heat up due to the NGNBN.
SingTel intends to retain its rights to carry the BPL but expects to be more rational with its bid. We downgrade SingTel to Neutral from Outperform, maintain our earnings estimates but tweak our SOP-based target price given its rising risks and CIMB’s rising optimism on the stock market.
What Happened
SingTel held a conference call after its 3QFY12 results. We are a little more negative on the stock as we think fixed broadband competition in Australia may intensify ahead of the introduction of the next generation broadband (NGNBN), similar to what happened in Singapore. Competition in the Australian mobile space remains intense with no sign of a let-up.
In Singapore, it expects to be more rational in bidding for the rights to the 2013-15 BPL seasons in 2H12. We believe SingTel intends to win the rights to this content, although it will be non-exclusive, given that is the anchor content for its pay TV.
We expect SingTel to continue to aggressively acquire both mobile and fixed broadband customers given its view to upsell them with content and applications down the road. It has a commanding 63% market share in fibre broadband.
What We Think
We think risks are rising for SingTel. Competition in Australia’s fixed broadband could intensify with the migration to NBN, similar to what happened in Singapore. StarHub’s broadband revenue and ARPU declined ahead of the launch of NGNBN as it jostled with SingTel for market share. In the Philippines, we think competition will be intense despite industry consolidation as Globe and PLDT slug it out for market share. Lastly, the Indian rupee remains weak.
What You Should Do
We advocate switching from SingTel to StarHub which we think will undertake a capital management in 2H12. We think SingTel’s earnings will likely be flattish in the coming quarters with growth in Singapore offset by competitive pressures in Australia, the Philippines and currency weakness in India.