StarHub – BT
StarHub’s Q3 net profit declines 7.6% to $75.8m
But operating revenue increases 3.6% to $572.2m
STARHUB’S third-quarter net profit fell 7.6 per cent to $75.8 million from $82 million a year ago.
Earnings per share for the three months ended Sept 30 dipped to 4.42 cents from Q3 2010’s 4.78 cents.
At the same time, Singapore’s second largest telco grew operating revenue by 3.6 per cent to $572.2 million, from $552.3 million.
StarHub saw turnover edge up slightly at three of its four business segments during the quarter, except in fixed network services.
Mobile revenue, which makes up more than half of StarHub’s topline, rose 3 per cent to $307.4 million from $298.3 million.
Pay-TV and broadband services also grew turnover by 1 per cent and 3.3 per cent, respectively, to $93.4 million and $60.2 million.
StarHub has scored 5,000 new Pay-TV customers since Q3 2010, but lost 2,000 customers since the last quarter due to the conclusion of a three-month promotional period.
It also added 26,000 more broadband customers since Q3 2010.
Fixed network services was the only segment where revenue declined, slipping 4 per cent to $81.7 million from $85.1 million.
StarHub enjoyed higher equipment sales during the July-September period, taking in $29.5 million, a 62.6 per cent increase from $18.2 million last year.
It chalked up the increase due to a higher mix of smart phones and tablets which had higher selling prices.
StarHub announced an interim dividend of 5 cents per share.
The telco maintained its full-year outlook that revenue growth will be in the low single-digit range and Ebitda margins on service revenue will be about 30 per cent.
In an update on the demand for Next-Generation Nationwide Broadband Network (NGNBN) work services, StarHub said it has seen low corporate take-up in part because of delays in provisioning.
‘There is strong demand from our customers but corporate take-up of NGNBN has been slow because of how it has been rolled out,’ said StarHub CEO Neil Montefiore in a conference call yesterday.
There have been difficulties in accessing commercial buildings, explained CFO Tan Tong Hai.
And even when fibres have been laid, they may not work – a turn-off for many corporate customers which prize timeliness and quality of service, much more than residential consumers do.
StarHub is currently in talks with various parties on how to iron out the operational roadblocks.
StarHub ended trading yesterday down two cents at $2.86.
STEng – OCBC
Lower S$3.01 fair value on more muted 2011 outlook
Lower revenue but higher PATMI. Singapore Technologies Engineering (STE) 3Q11 revenue fell 6.2% YoY to S$1.4b but PATMI edged 2.7% higher to S$133.8m. The PATMI gain was the result of total one-off gains of S$5.3m, compared to oneoff losses of S$6.9m in 3Q11. For 9M11, revenue increased by 1.8% to S$4.45b and PATMI is up 9.8% to S$375.4m. 9M11 revenue met 71.3% and 71.8% of consensus and our 2011 respective revenue estimate, while 9M11 PATMI reached 71.1% of consensus and 73.6% of our 2011 PATMI estimate.
Segmental contributions. STE’s 3Q11 segmental revenue breakdown saw Aerospace eased 4.7% YoY to S$463.7m, Electronics fell 7.8% to S$311.2m, Land Systems dropped 16.6% to S$306.8m, while Marine gained 0.2% to S$254.8m, and Others surged 40.6% to S$58.1m. Management explained that the bigger-than-expected fall in Land Systems revenue was due to earlier forecasted revenue targets being adversely impacted by the uncertain economic conditions and the delay in some projects. On the pre-tax profit line, Electronics and Aerospace segments were the stars, with their pre-tax profit gaining 10.3% and 9.8% to S$37.6m and S$73.8m respectively; but Land Systems segment recorded pre-tax profit of S$12.3m, or 54.6% lower than a year ago.
Management lowered 2011 guidance. At last Friday’s results briefing, management warned of uncertainties arising from (1) the sovereign debt issue in Europe, (2) the slowing American economy, and (3) unrest in the Middle East and North Africa. Management also lowered its guidance for 2011 revenue and pre-tax profit to be comparable to 2010 versus higher revenue and pre-tax profit previously. Nevertheless, order book remained healthy at S$11b, up from S$10.8b at end-2Q11. Incorporating management’s latest guidance into our earnings model, we have lowered our 2011 revenue and PATMI estimate by 2.4% and 1.3% to S$6.05b and S$503.2m respectively.
Maintain BUY with lower S$3.01 fair value. Given the uncertain global economic outlook and management watering down its guidance, we decided to use a lower forward P/E multiple to price STE. Instead of the 19.4x average forward P/E previously, we now use 18.5x, or half a standard deviation below its historical average, against STE’s EPS estimates over the next four quarters to arrive at a fair value of S$3.01, down from S$3.37 previously; but we maintain our BUY rating on STE.
SingTel – CIMB
Bharti’s 2Q12 below
Bharti’s 2Q12numbersmiss ourestimateswhich arebased on consensus due to upfront and non-recurring finance charges and lower-than-expectedmargins. Despite this, we remain positive on SingTel, one of our top picks in the region.
We expect SingTel’s 2QFY12 core net profit to be flat qoq and yoy. Also, SingTel islooking to buy 2% of ADVANC from Shin Corp at THB130/share, a value which we deemfair. Maintain Outperformon improving fundamentals among its units and attractive dividends.
What Happened
Bharti’s 2Q11 highlights were:1) total minutes declined for the first time, under the influence ofseasonalityand the economy;and 2) mild revenue growth(+1.7% qoq)as there wasa fall in minutes and ARPUsin India while business in Africa grew strongly thanks to elasticity gains;3) margins were firm with strengthin Africa, and 4) one-off finance cost and regulatory payments. The conference callhighlighted that irrational pricing by the smaller players has beenignoredby the incumbents and also, Bharti’s confidence in Africa as it raisesits capex guidancethere.
SingTel’s 2QFY12 core net profit could come inflat qoqand trending a little below expectations. SingTel Singapore’s core net profit should decline qoq on lower seasonal margins. Associate contributions should rise despite weak contributions from Bharti, thanks to ADVANCand Telkomsel.
Lastly, SingTel is looking to buy 2.05% of ADVANC from Shin Corp at up to THB130/share.
What We Think
While Bharti’s 2Q is disappointing and its business in India/South Asia shows the strains of defending its market leadership, we note the effectsof seasonality. We believe that recentpricing hikes would also benefit Bharti once the effects flow through. In the longer term, minutes should flow back to the incumbent especially if consolidation occurs.
We are neutral onSingTel’s proposed acquisition of ADVANC, given that the valuation is fair.
What You Should Do
Maintain OUTPERFORM.Bharti’s results, while a disappointment, do not alter our positive view on SingTel which we like for the improving fundamentals among its unitsand yields. It is one of our top picks in the region.
SingTel – BT
Bharti confident of turning around in Africa
BHARTI Airtel is confident of growing its high-speed mobile data business and turning around its struggling African operations after the Indian mobile market leader reported a bigger-than-expected fall in fiscal second-quarter profit that was its seventh consecutive quarterly profit drop.
Bharti yesterday said that net profit for the three months ended September fell 38 per cent, hit by higher interest costs, foreign exchange losses and its money-losing African operations.
The poster boy of India’s telecoms sector last year ventured into Africa by acquiring most of the mobile operations of Kuwait’s Zain in a US$9 billion deal, becoming the world’s fifth-biggest mobile carrier by subscribers.
But high costs have weighed down the firm which has yet to turn a profit there.
In India, the outlook for Bharti and its rivals have improved after they raised voice call prices by about a fifth, the first such increase in at least two years, after a vicious price war in the 15-player market squeezed profits.
The government has said that it would ease rules for telecoms mergers and acquisitions to facilitate consolidation in the crowded sector, a move seen as positive for companies such as Bharti, who were hit by stiff competition from new entrants after India issued more telecoms licences in 2008.
‘We have turned slightly overweight on the sector,’ said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance, which holds telecoms stocks in its portfolio of US$1.8 billion. ‘The trigger has been that telecoms companies are getting back the pricing power and there is some element of consolidation.’
Bharti shares, valued at more than US$30 billion, were up more than 0.7 per cent by 0824 GMT after falling initially after the results were announced. The stock is up 10 per cent this year, outperforming a nearly 14 per cent fall in the broader market .
Bharti was founded by Sunil Mittal, who started his career selling bicycle parts and saw an opportunity in telecoms when India was opening the sector to private participation in the mid-1990s. Mr Mittal is India’s sixth-richest man currently, according to Forbes magazine.
Carriers in India, the world’s second-biggest mobile phone market with about 870 million users, are also betting on premium data services to boost margins after they launched third-generation (3G) networks earlier this year, although the initial uptake has been slower than expected.
Bharti has seven million 3G customers in India, with a quarter of them using the services regularly. — Reuters
STEng – BT
ST Engg Q3 profit rises 2.7% to $133.8m
Revenue slides 6.2% to $1.39b; EPS rises to 4.39 cents
SINGAPORE Technologies Engineering (ST Engineering) chalked up a 2.7 per cent rise in third-quarter net profit to $133.8 million, from $130.2 million a year ago, despite a fall in revenue.
The group’s revenue slid 6.2 per cent, from $1.49 billion to $1.39 billion, for the three months ended Sept 30, 2011. But gross profit margin rose as cost of sales fell 8.7 per cent.
Except for its marine sector which had comparable revenue, the rest of its sectors – aerospace, electronics, and land systems – registered lower revenue compared to Q3 2010.
For the nine months ended Sept 30, ST Engineering’s net profit attributable to shareholders rose 8.2 per cent year on year to $375.4 million, while revenue rose 1.8 per cent to $4.4 billion.
Earnings per share (EPS) for the group rose to 4.39 cents for Q3 2011, up from 4.31 cents a year ago.
No interim dividend was recommended for the quarter.
The group’s profit before tax (PBT) of $165.9 million in Q3 2011 was 3.8 per cent higher than Q3 2010’s PBT of $159.8 million.
All sectors recorded higher PBT except for Land Systems, where PBT dropped 46 per cent due to lower revenue and higher operating expenses. Aerospace posted a 20 per cent growth in PBT, mainly due to write-back of allowance for inventory obsolescence following the revised inventory allowance estimates, lower finance costs, and higher contribution from associates.
However, these were partially offset by higher administrative expenses.
ST Engineering had ‘revised the obsolescence rates to align more closely with the industry practices’. The effect of this change for its four sectors resulted in a write-back allowance for inventory obsolescence of $19 million to its income statement.
Electronics PBT in Q3 2011 increased 15 per cent thanks to favourable sales mix, better contribution from satellite communication product sales, and write-back of allowance for stock obsolescence. These were partially offset by the impairment in value of intangible assets and higher operating expenses.
Marine PBT improved 7 per cent, due to higher write-back allowance for doubtful debts and higher other income, but these were partially offset by lower gross profit due to unfavourable sales mix.
ST Engineering president and chief executive officer Tan Pheng Hock said: ‘The group continues to secure orders and grow its order backlog to $11 billion at the end of the quarter despite the challenging environment.’
‘Barring unforeseen circumstances, the group expects to achieve revenue and PBT for FY 2011 comparable to FY 2010.’
ST Engineering gained four cents to close at $2.85 yesterday, before its results were out.