SPH – BT
SPH reports 4.7% slip in Q1 net profit
Singapore Press Holdings (SPH) on Tuesday posted a 4.7 per cent drop in net profit to $97.5 million for the first quarter ended November 30, 2011 compared to the same period a year ago.
Group recurring earnings for the first quarter was up 4.2 per cent to $121 million. Investment income tumbled 90.3 per cent over the year to $600,000 due to unrealised foreign exchange losses on investments as a result of volatility in the financial markets.
Revenue for the group’s newspaper and magazine business fell 1.2 per cent to $262 million over the year.
Print advertising revenue dipped 1.2 per cent to $204 million, while circulation revenue inched down 1.8 per cent to $50.3 million.
Rental income for group was up 27.2 per cent to $46.9 million, with Clementi Mall recording rental income of $9 million in the quarter.
Newsprint costs rose 4.2 per cent, while staff costs were up 1.5 per cent.
Other operating expenses grew 16.1 per cent due to the start of Clementi Mall’s operations, and higher overheads from increased business activities and inflationary pressures.
‘The outlook for the global economy remains fraught with uncertainties,’ said Alan Chan, chief executive officer of SPH.
‘The group will strive for a sustained performance in the core newspaper business whilst pursing growth in business adjacencies.’
Shares of SPH closed three cents higher at $3.70 a piece.
SMRT – OCBC
BUSINESS AS USUAL BUT FOCUS
ON MINISTERIAL STATEMENT
•Beleaguered SMRT CEO resigns
•No interim impact; business as usual
•Ministerial Statement will be key focus
SMRT CEO resigns immediately.
SMRT announced late Friday evening that CEO Saw Phaik Hwa has decided to step down with immediate effect to “pursue personal interests”. Ms. Saw had been under pressure ever since the series of major service disruptions in Dec last year but had previously rejected calls for her resignation whilst stating her commitment to fix the service issues.
No interim impact; business as usual.
As the Board of Directors search for a new CEO – most probably externally – Board member, Mr. Tan Ek Kia, will assume interim executive responsibility for the management of the company. With his previous work experience as Managing Director of Shell Malaysia Exploration and Production and Chairman of Shell North East Asia, we do not foresee any issues arising from this temporary arrangement on operations.
Ministerial Statement to shed light on punishment.
Transport Minister, Mr. Lui Tuck Yew, will make a Ministerial Statement today on the MRT service disruptions last month. Some of the issues expected to be discussed are on the Committee of Inquiry and its work, reasons for the disruptions as well as if SMRT will be held accountable for the breakdowns.
Initial selling pressure may occur but maintain BUY.
While the timing was a surprise, Ms. Saw’s resignation had been somewhat expected and should not affect its share price. Instead, we believe that investor focus will be on the Transport Minister’s Ministerial Statement, which should provide some indication on the penalty to be imposed on SMRT as well as the possibility of any additional costs necessary to plug service gaps. As we maintain our assertion that SMRT’s dividend payout ability remains intact at least for the year (FY12F dividend yield: 4.4%), we leave our DDMderived fair value of S$2.04 unchanged and maintain our BUY rating on SMRT.
TELCOs – BT
Telcos top picks in two outlook reports as volatility persists
M1, SingTel, DBS, Frasers Centrepoint Trust have emerged as key ‘buy’ calls
WITH global uncertainties carrying over from 2011 into the new year, telecommunications stocks have once again come up as top picks in two market outlook and strategy reports.
M1, SingTel, DBS, and Frasers Centrepoint Trust, in particular, have emerged as key ‘buy’ calls from both UOB Kay Hian Research and OCBC Bank’s Wealth Panel, in separate reports released on Friday.
Forecasting a 2012 Straits Times Index (STI) price to earnings (PE) ratio of 12.1x, UOB Kay Hian said the index’s valuation is ‘undemanding’ – at a 26 per cent discount to its long-term PE mean of 16.3x (since 1993).
‘Nevertheless, we think the discount may remain elevated in the near term, given the uncertain prospects for 2012 corporate earnings and lingering concerns over the euro debt crisis,’ said UOB Kay Hian.
The research house said investors should opt for a balance of sustainable high-yield stocks, selective retail Reits, and ‘undervalued laggards with specific stock catalysts’.
Apart from the telcos, UOB Kay Hian’s key ‘buys’ included CapitaLand and Ezion, while City Developments and NOL sat in its key ‘sells’ list. It also recently upgraded Wing Tai and Ho Bee to ‘buys’ due to their deep value after sharp share price corrections in December last year.
Meanwhile, OCBC Investment Research head Carmen Lee warned that even though share prices appear to have discounted weaker earnings expectations, ‘they may not have been fully priced in the worst case scenario’.
Said Ms Lee: ‘If the outlook deteriorates significantly, earnings estimates will need to be shaved further.’
With volatility persisting and investor confidence remaining fragile, the OCBC Wealth Panel said that it prefers quality and safer assets, and high dividend yielding defensive stocks.
Telecommunications aside, the OCBC team said that they continue to favour the healthcare and oil and gas sectors in 2012. Its picks for the year include Raffles Medical, Keppel Corp, Sembcorp Marine, Biosensors, and Golden Agri-Resources.
SingPost – OCBC
SET TO DELIVER ON RAINY DAYS
•Defensiveness amid uncertainty
•Larger deals may be catalysts
•Upgrade to BUY
Increasingly favourable risk-reward ratio.
2012 is likely to present a highly uncertain environment for investors, and we think the 1) defensiveness of SingPost’s business, 2) its consistently decent dividends and 3) the recent stock price correction means the stock’s risk-reward ratio is increasingly favourable for equity investors. The group is also on an acquisition trail to seek further growth opportunities.
Backed by stable operating cash flows.
We like SingPost for its stable operating cash flows given its noncyclical business. Historically, SingPost has weathered economic downturns well, with flat revenues during the Asian financial crisis, a marginal 2% fall during the SARS crisis and a 1.8% growth during the 2008 downturn. The group also has a strong balance sheet and a dominant market position in the local scene. Such factors render it an attractive stock given the expected market volatility in 2012.
Well-perceived deals as catalysts for stock.
The group has been active in acquiring stakes in companies outside of Singapore for both business and geographical diversification, though deal sizes have been relatively small. Looking ahead, we expect to hear more news on the M&A front, especially in logistics and ecommerce. Opportunities can best be found during periods of market uncertainty, and sizeable M&A deals may be catalysts for the stock should SingPost make acquisitions that are well-perceived by the investing community.
Upgrade to BUY.
SingPost has been consistent in its 6.25 S cents/share dividend payout since FY07 and we expect this trend to continue, given its resilient business and stable free cash flows. The stock price has also fallen by about 11% since end Oct last year compared to the STI’s 7.5% drop. Given the current upside potential of 21.9% along with a forecasted dividend yield of 6.7%, we upgrade our rating to BUY with an FCFE-derived fair value estimate of S$1.14 (7.28% cost of equity), which is also backed by the DDM model (2% terminal growth).
TELCOs – DBSV
Hostile non-mobile
• Mobile sector could benefit from lower data-cap and adoption of Android phones.
• Intense competition in broadband and structural changes in pay TV may outweigh the positives.
• StarHub outperformed STI by 32% in 2011, downgrade to HOLD. Prefer SingTel on valuation grounds despite hiccups from weak Indian Rupee
Positive signs emerging in the mobile sector. Firstly, telcos are offering faster speeds (4G) and better quality of service (priority pass to premium customers), to encourage users to adopt lower data-cap. During 4G launch in Dec 2011, SingTel capped 4G data at 10GB versus 50GB on 3G and intends to lower 3G data cap with more 4G roll out in 2012 (see Table 1 on next page). Lower data-cap is likely to enhance data-revenue. Secondly, Android phones from Samsung & HTC support 4G and Near Field Communication (NFC), not available on iPhone yet. 4G support is crucial as telcos may start to offer 4G over smart phones by mid 2012. Besides NFC enabled phones will allow users to “tap” and pay at over 20K retail points and taxis from June 2012 onwards. Telcos stand to benefit from lower handset subsidies (than iPhone) and revenue sharing for certain Apps on Android platform.
StarHub faces uphill task in consumer broadband. StarHub offers broadband speeds of 50 & 100 Mbps on its Hybrid Co-axial Cable (HFC) network compared to SingTel offering up to 15 Mbps using ADSL technology. As National Broadband Network (NBN) reaches 95% of population in June 2012, many of the high-end customers could switch to lower-margin fibre plans. Meanwhile, in the corporate space, StarHub & M1 concede that NBN progress is quite slow due to the lack of control over service provisioning.
Structural changes for pay TV in the longer term. Under Next Generation Interactive Multimedia, Applications and Services (NIMS) project, regulators want to support contents from various providers accessible on a common set top box. The project is likely to be awarded to one of the three telcos in 1H12F and would be based on IPTV platform in our view. StarHub may need to support IPTV platform in addition to HFC platform.
StarHub is trading above +1SD valuations. We prefer SingTel for its (i) cheap valuation of 12x forward PE versus 16x for StarHub and 13x for M1. Downgrade StarHub to HOLD as we trim FY12F/13F earnings by 3%. Maintain HOLD on M1 as consensus FY12F earnings are 7% above ours. As mobile ARPU has not increased at all, fair value accounting for handsets may lead to disappointment in 2012F.