SMRT – DBSV
Disembark and move on
• A lower DPS could be additional de-rating catalyst for the counter in light of challenges faced
• Lowered our FY13F yield projections to 4.1%
• Negative profit growth, regulatory risks, management changes are reasons not to hold on
• Cut earnings by 11%/12%; Downgrade to Fully Valued, TP lowered to S$1.50
Lowering our DPS in FY13F. We believe prospective dividend payout could have downside risk on the back of lower profits, higher repair and maintenance costs, and possibly regulatory policy changes. We have lowered our FY13F DPS to 7.25 Scts (interim and final payout) equating to a payout ratio of c.79%, similar to FY07 to FY10. This would bring the prospective dividend yield down to c.4.1%; and, could be an additional de-rating catalyst for the stock, in our view.
Many reasons not to hold on. We project earnings to register -15%/ 1% growth in FY12F/ 13F after trimming forecasts by 11%/12% on higher expenses and lower ridership growth. Higher regulatory risks going forward, as well as the numerous management departures over the last 14 months add to reasons for not holding this counter.
Downgrade to Fully Valued, cut earnings and TP. We lowered our PE/DCF-based TP to S$1.50 given lower earnings, and a lower target PE valuation peg of 13x (-0.5 std dev from average) given sub-par earnings growth. We are cautious on the counter and downgrade SMRT to Fully Valued.
SPH – CIMB
Tops bid for Sengkang site
Coming in at a 21% premium over the next highest bid, we believe that SPH/UE JV’s bid for the Sengkang retail site is aggressive, notwithstanding the site’s good attributes. Implied 5%yields on breakeven costs are also below cap rates for suburban retail.
We keep our estimates and SOP target price unchanged pending an award of the tender. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.
What Happened
SPH in a 70:30 JV with United Engineers has come out tops in a bid for a greenfield Sengkang retail site at S$328m (S$1,156 psf ppr) or 21% above the next highest bid. The 99-year leasehold site attracted a total of 12 bidders. Site is targeted for a retail development with maximum GFA of 283,856sf.
What We Think
Management appears to be pricing in a premium in its bid. Factoring in development and other costs, breakeven is estimated at about S$2.5k psf, which translates to yields of about 5.1% assuming rentals of S$15 psf. This compares negatively with typical yields of 5.5-5.6% expected on suburban malls. While the site is well-located near the Fernvale LRT station with potential good rental growth and catchment, we see some competition from Compass Point (next to Sengkang MRT station). A redeeming factor could be its partnership with United Engineers, which could cap or even lower its development costs and risks–we understand that SPH has an agreement with United Engineers whereby the latter bears cost overruns during construction. Funding is not expected to be a problem given its strong balance sheet.
What You Should Do
We see the positive of utilising its balance sheet outweighed by the slight negative of a fairly high bid price. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.
SPH – CIMB
Tops bid for Sengkang site
Coming in at a 21% premium over the next highest bid, we believe that SPH/UE JV’s bid for the Sengkang retail site is aggressive, notwithstanding the site’s good attributes. Implied 5%yields on breakeven costs are also below cap rates for suburban retail.
We keep our estimates and SOP target price unchanged pending an award of the tender. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.
What Happened
SPH in a 70:30 JV with United Engineers has come out tops in a bid for a greenfield Sengkang retail site at S$328m (S$1,156 psf ppr) or 21% above the next highest bid. The 99-year leasehold site attracted a total of 12 bidders. Site is targeted for a retail development with maximum GFA of 283,856sf.
What We Think
Management appears to be pricing in a premium in its bid. Factoring in development and other costs, breakeven is estimated at about S$2.5k psf, which translates to yields of about 5.1% assuming rentals of S$15 psf. This compares negatively with typical yields of 5.5-5.6% expected on suburban malls. While the site is well-located near the Fernvale LRT station with potential good rental growth and catchment, we see some competition from Compass Point (next to Sengkang MRT station). A redeeming factor could be its partnership with United Engineers, which could cap or even lower its development costs and risks–we understand that SPH has an agreement with United Engineers whereby the latter bears cost overruns during construction. Funding is not expected to be a problem given its strong balance sheet.
What You Should Do
We see the positive of utilising its balance sheet outweighed by the slight negative of a fairly high bid price. Maintain Neutral as decent yields of 6% remain balanced by risks of receding ad growth and investments.
M1 – BT
Analysts lower expectations of M1
ANALYSTS found little cause for excitement in M1’s full-year results that were released on Monday, with earnings falling just a hair short of some expectations and the outlook for the year ahead being a guarded one.
Full-year net profit came in at $164.1 million, about 1.4 per cent below Kim Eng Research’s forecast of $166.5 million and half a per cent shy of OCBC Investment Research’s estimates.
Revenue, which rose 8.8 per cent to $1.06 billion, beat OCBC’s estimate by about 4 per cent, driven by stronger handset sales. Phillip Securities Research analyst Derrick Heng noted that ‘M1 uses a fair value accounting method to record the sales of its iPhones that partly contributed to the strong top line recorded for its handset sales’.
Mr Heng, who downgraded the counter to ‘reduce’, also pointed out that even with higher value smartphone plans sold, postpaid average revenue per user (Arpu) was ‘only stable sequentially and declined by 1.6 per cent y-o-y in Q4 FY2011’. ‘We view that as a reflection of the inability to monetise mobile service revenue, in spite of high subsidy on the more expensive smart phones.’
DBS’s Sachin Mittal also believes that ‘each smartphone customer is more profitable initially due to fair value accounting and M1 may see a more adverse impact from the slowdown’. He maintained his ‘hold’ call on the stock, with a target price of $2.60.
Some analysts also appear to have tempered upbeat expectations of how M1 stands to gain from the rollout of the Next Generation Nationwide Broadband Network (NGNBN), at least in the near term.
‘(M1) expects fixed-data growth to pick up on the back of greater awareness among consumers of NGNBN which should pass 95 per cent of premises by mid-2012 from 84 per cent at end-2011,’ said CIMB Research’s Kelvin Goh and Justin Law in a report. ‘However, much of this is beyond M1’s control as progress would depend on OpenNet’s ability to connect premises with fibre. As for now, connection times are about three weeks, longer than the KPI of six days.’
CIMB has a ‘neutral’ call on M1.
Analysts also took their cue from the telco’s expectations of a ‘stable performance’ in 2012. M1 had warned that roaming revenue might be affected if a global slowdown were to dampen travel as well.
M1 closed five cents lower at $2.51 yesterday.
M1 – BT
Analysts lower expectations of M1
ANALYSTS found little cause for excitement in M1’s full-year results that were released on Monday, with earnings falling just a hair short of some expectations and the outlook for the year ahead being a guarded one.
Full-year net profit came in at $164.1 million, about 1.4 per cent below Kim Eng Research’s forecast of $166.5 million and half a per cent shy of OCBC Investment Research’s estimates.
Revenue, which rose 8.8 per cent to $1.06 billion, beat OCBC’s estimate by about 4 per cent, driven by stronger handset sales. Phillip Securities Research analyst Derrick Heng noted that ‘M1 uses a fair value accounting method to record the sales of its iPhones that partly contributed to the strong top line recorded for its handset sales’.
Mr Heng, who downgraded the counter to ‘reduce’, also pointed out that even with higher value smartphone plans sold, postpaid average revenue per user (Arpu) was ‘only stable sequentially and declined by 1.6 per cent y-o-y in Q4 FY2011’. ‘We view that as a reflection of the inability to monetise mobile service revenue, in spite of high subsidy on the more expensive smart phones.’
DBS’s Sachin Mittal also believes that ‘each smartphone customer is more profitable initially due to fair value accounting and M1 may see a more adverse impact from the slowdown’. He maintained his ‘hold’ call on the stock, with a target price of $2.60.
Some analysts also appear to have tempered upbeat expectations of how M1 stands to gain from the rollout of the Next Generation Nationwide Broadband Network (NGNBN), at least in the near term.
‘(M1) expects fixed-data growth to pick up on the back of greater awareness among consumers of NGNBN which should pass 95 per cent of premises by mid-2012 from 84 per cent at end-2011,’ said CIMB Research’s Kelvin Goh and Justin Law in a report. ‘However, much of this is beyond M1’s control as progress would depend on OpenNet’s ability to connect premises with fibre. As for now, connection times are about three weeks, longer than the KPI of six days.’
CIMB has a ‘neutral’ call on M1.
Analysts also took their cue from the telco’s expectations of a ‘stable performance’ in 2012. M1 had warned that roaming revenue might be affected if a global slowdown were to dampen travel as well.
M1 closed five cents lower at $2.51 yesterday.