StarHub – BT
StarHub’s Q4 net profit up 15.1% at $92.6m
Mobile business main Q4 revenue driver at $312.2m, up 3.1%
STEADY performance from its mobile and broadband businesses pushed StarHub’s net profit for 2011 to $315.5 million, up 19.9 per cent from the previous year.
The triple-play provider saw fourth-quarter net profit grow 15.1 per cent to hit $92.6 million.
Q4 and full-year operating revenues rose 9.6 per cent to $612.6 million and 3.3 per cent to $2.31 billion respectively.
Mobile revenue – still the main contributor to StarHub’s business at 51 per cent in the last quarter of 2011 – grew 3.1 per cent over the corresponding period the year before, to $312.2 million. For the year, mobile revenue was $1.22 billion, up 3.1 per cent over 2010.
One factor driving mobile revenues was increased Arpu (average revenue per user) as Singapore’s smartphone-savvy population continued to spend more on mobile services and data, said StarHub’s chief operating officer Tan Tong Hai.
He said mobile post- paid revenue grew 6 per cent, and that non-voice services contributed 39.8 per cent of Arpu for the customer segment in Q4. ‘This reflects steady growth in mobile usage.’
The company is looking to mobile services growth to bolster the segment, since the country’s subscriber base is fairly saturated at 149 per cent, so growth by absolute numbers will be slow.
Post-paid Arpu stood at $74 for the year, up from $72 in 2010. Its post-paid base was 1.06 million users, 30,000 more than the previous year.
In contrast, while StarHub added 16,000 more pre-paid customers to total 1.12 million in the segment, its Arpu continued to decline as fewer consumed mobile services. As a result, pre-paid mobile services revenue dropped 6 per cent to $249.4 million over the year.
Its second pillar of revenue, its broadband business, took in $60.6 million for the fourth quarter and $241.7 million for the year, representing a growth of 2.7 per cent and 2.4 per cent over the same periods the year before.
The company’s fixed network services revenue also rose 3 per cent to hit $88 million in the fourth quarter, and 1.5 per cent to $336.7 million for the year.
The provider, which started rolling out services on the next-generation fibre nationwide broadband network (NBN) last year, started seeing those subscriptions contributing to its data and Internet services portfolio.
StarHub CEO Neil Montefiore noted that this contribution remains low for now, as the country’s base of subscribers starts to ramp up and as infrastructure owner OpenNet continues to cover the island.
The company’s pay cable TV revenue dipped from the year before, however, since StarHub lost exclusive broadcast rights to the Barclays Premier League (BPL) to SingTel. Revenue for 2011 was $376 million, dropping $19.4 million from 2010, as the company was forced to drop its ‘sports’ content subscription price. The company also said 2010’s revenues benefited from the FIFA World Cup.
Mr Montefiore pointed out that pay-TV revenue has since stabilised, and that its number of subscribers stood at 545,000 as at Dec 31, 2011, compared with 538,000 at end-2010.
StarHub estimates it had 45.2 per cent share of the country’s pay-TV market by the end of 2011.
Renewing pay-TV content and set-top boxes contributed to a rise in capex, commented Kwek Buck Chye, StarHub’s chief financial officer.
Higher sub-contractor costs for the company’s infrastructure expansion efforts also added to capex.
The group’s operating expenses (including cost of sales) went up 1.8 per cent to hit $1.94 billion. Higher marketing and staff costs were mitigated by lower other expenses such as maintenance and operating leases. It ended the year with cash and cash equivalents of $179.2 million, and is recommending a final fourth quarter dividend of 5 cents per share. It intends to maintain its annual cash payout of 20 cents at the end of this year.
The counter closed one cent higher at $2.83 yesterday.
The telco is also one of the first to acquire a vanity top-level domain name, ‘.starhub’, and has paid US$185,000 for the privilege.
SMRT – BT
Analysts zero in on SMRT’s mounting costs
ANALYSTS dubbed SMRT Corporation’s third-quarter showing an ‘uninspiring’ one as the transport group reported numbers that showed margins coming under siege from higher diesel and repair and maintenance costs.
Though SMRT’s Q3 revenue of $268.2 million met consensus estimates, analysts chose to focus on the pressures on its bottom line – net profit for the quarter fell 13.9 per cent to $37 million.
‘Persistent cost pressure remains our biggest concern as SMRT’s (earnings before interest and taxes) margin narrowed 4.6 percentage points to 16.7 per cent in 9M 2012 compared to 21.3 per cent a year ago,’ Kim Eng Research’s Eric Ong said in a report yesterday. He maintained his ‘sell’ call on the stock, with a target price of $1.50.
The pressure of operating costs is not expected to let up in Q4, prompting OCBC Investment Research analysts to lower their net profit estimate for SMRT by 4 per cent, even though they maintained their ‘buy’ call on the stock.
‘With an uninspiring Q3 2012 performance, consensus estimates for SMRT’s FY2012 earnings will likely come off,’ the OCBC report said.
Likewise, Phillip Securities Research’s Derrick Heng has cut his earnings estimates by between 6.4 and 10.2 per cent for the next three years, citing the ‘weak profit outlook’, among several things.
Investigations by the Committee of Inquiry (COI) – following the two major train service disruptions of December – have also given analysts reason to eye SMRT’s future with some wariness.
‘We remain cautious on the counter arising from regulatory risks post the release of the COI’s findings, and recommendations . . . We believe it is likely to be more onerous on the public transport operators going forward,’ said DBS Group Research’s Andy Sim in a report yesterday.
CIMB Research’s Lee Wen Ching also noted the possibility of the fallout from the service disruptions having a longer-term impact.
‘SMRT’s operations remain under scrutiny by the regulatory bodies. If these result in a more stringent maintenance regime, its cost structure may be permanently elevated,’ Ms Lee said in a report.
She believes that the stock’s current valuations – at $1.74 when the report was written – are ‘unjustified’, pegging its value at $1.55 instead.
‘SMRT trades at a premium to its peer ComfortDelGro (CD) despite weaker earnings prospects,’ Ms Lee said.
Even as jittery punters are wont to steer clear of SMRT shares in the meantime, OCBC’s analysts believe that ‘an attractive entry point’ for the counter has emerged, given that it has lost 1.7 per cent of its value since the start of the year and has an unchanged dividend policy.
Yesterday, SMRT also announced a $195 million undertaking to replace the signalling system on the North-South East-West Lines.
The counter closed a cent lower at $1.73 yesterday.
SMRT – DBSV
Riding against the tide
At a Glance
• 3Q12 net profit dropped 14% y-o-y as expected
• Expect higher costs in 4Q and beyond, largely from train service disruptions related costs, higher staff and energy costs
• Regulatory risks will also cap upside in share price
• Cautious view maintained, Fully Valued and TP at S$1.50
Comment on Results
3Q drop as expected. Net profit dropped by -14% y-o-y to S$37m, while revenue grew by 10% to S$268.2m on higher ridership, taxis, rental and advertising revenues. The drop in profits arose from higher electricity and diesel costs (S$40.4m, +31%), repair & maintenance (S$20.9m, +15%) and other operating expenses (S$48.1m, +21%). EBIT fell to S$46.4m (-11% yo-y) while margins dropped by 4.1ppts to 17.3% (3Q11: 21.4%). Largest contributor, train segment posted 14% y-o-y drop in EBIT to S$25.7m, but this was partially helped by stronger contribution from rental (S$15.6m, +9% y-o-y) and advertising (S$5.6m, +18% y-o-y) segments.
4Q to be lackluster with rising expenses. 9M12 net profit formed 77% of our full year estimates (9M11: 79% of FY11). We maintain our projected c.15% fall in FY12F net profit, and a lackluster growth of 1% in FY13F. Management has guided for its train profitability to be impacted by higher professional, legal and repair & maintenance costs arising from last Dec’s MRT train breakdowns. In addition, its bus operations remain in the red due to high diesel costs and impairment of goodwill could ensue if this persists (current intangibles for Bus: S$21.7m).
Recommendation
Cautious view maintained, TP $1.50. We remain cautious on the counter arising from regulatory risks post the release of the Committee of Inquiry’s findings, and recommendations. LTA, in response to a newspaper forum on 27 Jan, indicated that it “will thoroughly review the regulatory and penalty framework and its oversight over the operators’ maintenance regimes to strengthen it where necessary“. We believe it is likely to be more onerous on the public transport operators going forward. We continue to prefer ComfortDelGro (at c.12.2x FY12F PE) for its lower valuation, and more geographically diverse business contributions. Our TP of S$1.50 is based on average of PE (13x FY12F) and DCF (WACC: 7.1%, t=1%).
SMRT – DBSV
Riding against the tide
At a Glance
• 3Q12 net profit dropped 14% y-o-y as expected
• Expect higher costs in 4Q and beyond, largely from train service disruptions related costs, higher staff and energy costs
• Regulatory risks will also cap upside in share price
• Cautious view maintained, Fully Valued and TP at S$1.50
Comment on Results
3Q drop as expected. Net profit dropped by -14% y-o-y to S$37m, while revenue grew by 10% to S$268.2m on higher ridership, taxis, rental and advertising revenues. The drop in profits arose from higher electricity and diesel costs (S$40.4m, +31%), repair & maintenance (S$20.9m, +15%) and other operating expenses (S$48.1m, +21%). EBIT fell to S$46.4m (-11% yo-y) while margins dropped by 4.1ppts to 17.3% (3Q11: 21.4%). Largest contributor, train segment posted 14% y-o-y drop in EBIT to S$25.7m, but this was partially helped by stronger contribution from rental (S$15.6m, +9% y-o-y) and advertising (S$5.6m, +18% y-o-y) segments.
4Q to be lackluster with rising expenses. 9M12 net profit formed 77% of our full year estimates (9M11: 79% of FY11). We maintain our projected c.15% fall in FY12F net profit, and a lackluster growth of 1% in FY13F. Management has guided for its train profitability to be impacted by higher professional, legal and repair & maintenance costs arising from last Dec’s MRT train breakdowns. In addition, its bus operations remain in the red due to high diesel costs and impairment of goodwill could ensue if this persists (current intangibles for Bus: S$21.7m).
Recommendation
Cautious view maintained, TP $1.50. We remain cautious on the counter arising from regulatory risks post the release of the Committee of Inquiry’s findings, and recommendations. LTA, in response to a newspaper forum on 27 Jan, indicated that it “will thoroughly review the regulatory and penalty framework and its oversight over the operators’ maintenance regimes to strengthen it where necessary“. We believe it is likely to be more onerous on the public transport operators going forward. We continue to prefer ComfortDelGro (at c.12.2x FY12F PE) for its lower valuation, and more geographically diverse business contributions. Our TP of S$1.50 is based on average of PE (13x FY12F) and DCF (WACC: 7.1%, t=1%).
SMRT – BT
SMRT’s Q3 profit falls 14%
Repairs, power, fuel costs drain profit; it warns disruptions will hit 2012 profits
SMRT Corporation concluded a downbeat calendar year with a similarly subdued 13.9 per cent drop in net profit for its third quarter ended Dec 31, 2011.
The transport operator’s Q3 net profit fell to $37 million, from October-December 2010’s $43 million, despite a 10 per cent increase in revenue to $268.2 million for the three months.
For the nine months to Dec 31, 2011, the group saw net profit shrink 16.6 per cent to $105.9 million, even as revenue grew 7.9 per cent to $782.4 million. Earnings per share for the quarter and nine-month period stood at 2.4 cents and 7 cents respectively, down from 2.8 cents and 8.4 cents for the year-ago corresponding periods.
While SMRT’s two major service disruptions on the North-South Line happened in December towards the end of the third quarter, the resulting expenses booked for the period ‘were not significant’, according to Catherine Lee, SMRT’s executive vice-president and chief financial officer.
Instead, repairs and maintenance costs grew 14.8 per cent – or $2.7 million – in the third quarter, the bulk of which were ‘scheduled’ for the group’s train operations, it said.
Taking a further bite out of the bottom line were electricity and diesel costs which jumped 30.6 per cent – or $9.5 million – in the third quarter.
SMRT’s Q3 train operations saw revenue grow 9.2 per cent to $144.9 million, but operating profit took a 14.4 per cent hit, shrinking to $25.7 million.
SMRT warned that ‘consequential costs’ from the train service disruptions will affect the segment’s profitability over the next 12 months.
‘Such costs will be incurred in professional fees – in particular legal fees … and some costs in repair and maintenance as well,’ said Ms Lee.
While Ms Lee was unable to provide specific figures, she said that the group’s current estimate of disruption-related expenses stands at ‘a couple of million dollars’.
The service disruptions of December had been followed in short order by the resignation of the firm’s chief executive officer, Saw Phaik Hwa, last month.
While Tan Ek Kia, one of SMRT’s executive directors, has stepped in as interim CEO, the search for a new CEO continues. ‘It will take some time for us to find a suitable candidate,’ said Ms Lee yesterday.
SMRT’s bus operations posted revenue growth of 3.3 per cent to $54.4 million during the quarter, but sank further into the red. It posted an operating loss of $1.7 million, against a loss of $1.1 million for the same period a year ago, because of higher diesel and staff costs.
Over the next 12 months, if diesel costs stay high, the bus segment will bear the brunt of it and ‘goodwill will be impaired’, SMRT said.
The group’s taxi operations had a more robust showing, with a 28.4 per cent increase in revenue to $29.6 million. Operating profit almost doubled during the quarter, from $570,000 to $1.06 million.
Rental revenue saw an 11 per cent increase to $20.7 million and enjoyed an 8.6 per cent boost in operating profit to $15.6 million.
Despite analyst concerns about a tightening of dividend payouts in anticipation of the expensive aftermath of the disruptions, Ms Lee said yesterday that SMRT would ‘endeavour to maintain the dividend payout each year’ and that there was no intention to change its dividend policy.
For its last financial year, the group had declared a total dividend of 8.5 cents per share.
While revenue is expected to be higher in the group’s fourth quarter, SMRT does not expect to maintain the previous financial year’s profitability, because of ‘increasing cost pressures’.
SMRT’s counter closed 1 cent lower at $1.74 yesterday, before its financial results were announced.