SMRT – Kim Eng
Coming full circle
Event
• The final two stages of the Circle Line (CCL) will start operations from tomorrow. There will be 12 new stations, bringing the total number of CCL stations to 28. We understand that an extension with another two stations stretching from Promenade to the Marina Bay area will be launched in 1Q12. Despite the potential jump in ridership, we expect higher energy costs as a result of increased train runs to weigh on SMRT’s EBIT margin. Reiterate HOLD.
Our View
• The average ridership on the CCL currently is about 180,000 per day. With the opening of Stages 4 and 5 tomorrow, SMRT aims to achieve breakeven ridership of 330,000 per day in 6‐9 months’ time once commuters’ travel patterns stabilise. In our view, this projection seems overly optimistic given that the gestation period may be longer than expected. Ultimately, management targets a steady‐state ridership of 400,000‐500,000 daily.
• Rail revenue, however, will continue to lag ridership growth because of lower average fares with the implementation of the distance‐based fare system in July last year. We expect margin pressure to persist in the next few quarters with increased train frequency, which will further bump up electricity consumption. But there will be respite for SMRT from lower average tariffs in 2HFY Mar12 following the recent slide in fuel oil prices.
• Rental income, on the other hand, should receive a boost as retail space totalling 868 sq m at three new CCL stations – Holland Village (596.2 sq m), one‐north (248.3 sq m) and Botanic Gardens (23.5 sq m) – has been fully leased out. According to management, the entire CCL with a combined retail space of 3,150 sq m, or 80 shops, now enjoys a high occupancy rate of more than 90%.
Action & Recommendation
With no major near‐term catalysts in sight, we maintain our HOLD recommendation on SMRT with a target price of $1.82. The share price should be well‐supported by a decent dividend yield of almost 5%.
SingPost – DBSV
Dividend play; upside from buybacks & growth
• Generates S$50m cash annually after paying dividends; deployed in six M&A transactions YTD
• Singpost still needs to deploy idle cash, so share buybacks are likely to continue
• Upgrade to BUY with unchanged TP of S$1.17. We see a favorable +23% reward versus –4% risk
Singpost is a cash machine; deployment of cash is key. Free cash flow usually exceeds earnings, as regular capex of S$10-15m is less than depreciation expenses of S$20-25m. Singpost pays 6.25 Scts DPS each year, which translates to S$120m in dividends versus free cash flow of ~S$170m.
Six M&A transactions done in the last six months. SingPost has used S$65m to acquire stakes in six regional companies in the logistics, e-commerce and e-substitution sectors. Contribution from these acquisitions is estimated to be minimal in FY12F as Singpost invests in people and resources to manage these businesses. However from next year onwards, these investments will start to pay off.
Share buybacks may continue to deploy idle cash. Singpost pays fixed rate of 3.5% on its 10- year bonds while it stands to gain over 6% yield by buying back its own shares. Treasury shares can also be used later for regional expansion.
Trading at 13% discount to its average 1-year forward PE of 13.8x. Singpost has been resilient to market volatility, falling 10% vs. 20% decline in broader STI over the last two months. We upgrade stock to BUY at our TP of S$1.17 based on DDM (cost of equity 7.7%, growth rate 2%) for its >6% yield and steady earnings growth through acquisitions. We assume that dividends can grow by 2% p.a. in the long term.
SingPost – DBSV
Dividend play; upside from buybacks & growth
• Generates S$50m cash annually after paying dividends; deployed in six M&A transactions YTD
• Singpost still needs to deploy idle cash, so share buybacks are likely to continue
• Upgrade to BUY with unchanged TP of S$1.17. We see a favorable +23% reward versus –4% risk
Singpost is a cash machine; deployment of cash is key. Free cash flow usually exceeds earnings, as regular capex of S$10-15m is less than depreciation expenses of S$20-25m. Singpost pays 6.25 Scts DPS each year, which translates to S$120m in dividends versus free cash flow of ~S$170m.
Six M&A transactions done in the last six months. SingPost has used S$65m to acquire stakes in six regional companies in the logistics, e-commerce and e-substitution sectors. Contribution from these acquisitions is estimated to be minimal in FY12F as Singpost invests in people and resources to manage these businesses. However from next year onwards, these investments will start to pay off.
Share buybacks may continue to deploy idle cash. Singpost pays fixed rate of 3.5% on its 10- year bonds while it stands to gain over 6% yield by buying back its own shares. Treasury shares can also be used later for regional expansion.
Trading at 13% discount to its average 1-year forward PE of 13.8x. Singpost has been resilient to market volatility, falling 10% vs. 20% decline in broader STI over the last two months. We upgrade stock to BUY at our TP of S$1.17 based on DDM (cost of equity 7.7%, growth rate 2%) for its >6% yield and steady earnings growth through acquisitions. We assume that dividends can grow by 2% p.a. in the long term.
STEng – BT
ST Engg unit wins $125m DSTA contract
ST Engineering’s wholly owned integrated services arm ST Synthesis has secured a five-year contract worth about $125 million from Singapore’s Defence Science & Technology Agency (DSTA).
The contract, which begins this month, will see ST Synthesis provide facilities maintenance services to the Singapore Ministry of Defence (Mindef) controlled properties and facilities.
‘Security sensitivity, integrated, end-to-end operation and essential support capabilities offered on a 24/7 basis are of paramount importance in managing essential and intensive infrastructure of controlled properties and facilities,’ said Goh Lik Kok, general manager of ST Synthesis.
ST Synthesis, whose expertise includes preventive equipment maintenance and critical asset preservation, will provide maintenance services on the buildings’ infrastructure, mechanical and electrical equipment and systems for various properties including camps and military installations.
The mechanical and electrical equipment includes power generators, transformers and switchgears, electrical distribution systems, mechanical ventilation and airconditioning systems, lightning protection systems, earthing systems and fire alarms, and detection and protection systems as well as security surveillance and access control systems.
‘ST Synthesis is proud that we are able to leverage our expertise to provide comprehensive maintenance services to Mindef,’ said Mr Goh.
ST Synthesis has substantial experience in handling key installations and managing security sensitive complexes, infrastructures and facilities in Singapore.
Its maintenance contracts include the $6.5 million management and maintenance of essential equipment for Tuas Marine Transfer Station and Semakau Landfill, awarded by the National Environment Agency in January 2010.
The company was also awarded in July 2009 the $26.5 million Land Transport Authority contract for the comprehensive maintenance of Kallang Paya Lebar Expressway.
September 2011
STI = 2675.16 (-32.97)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SPH |
FY10 (Aug) |
31 |
27 |
$3.76 |
7.181% |
12.13 |
Interim 7ct ; Final 9ct + 11ct (Special) |
|
SingPost |
FY11 (Mar) |
8.369 |
6.25 |
$1.03 |
6.098% |
12.25 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
STI ETF |
Jun-11 |
— |
4.5 |
$2.72 |
3.309% |
— |
Jun11 4.5ct ; Dec10 3.5ct |
|
SATS |
FY11 (Mar) |
17.4 |
17 |
$2.20 |
7.727% |
12.64 |
Final 6ct + Special 6ct ; Interim 5ct |
|
ST Engg |
FY10 (Dec) |
16.21 |
14.55 |
$2.81 |
5.178% |
17.33 |
Final 4ct + 7.55ct (Special) ; Interim 3ct |
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY10 (Dec) |
17.63 |
8.80 |
$1.70 |
5.176% |
9.64 |
Interim 4.5ct ; Final 4.3ct |
|
ComfortDelGro |
FY10 (Dec) |
10.95 |
5.50 |
$1.31 |
4.198% |
11.96 |
Interim 2.7ct ; Final 2.8ct |
|
SMRT |
FY11 (Mar) |
10.6 |
8.5 |
$1.75 |
4.871% |
16.46 |
Interim 1.75ct ; Final 6.75ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY11 (Mar) |
24.02 |
25.8 |
$3.18 |
8.491% |
13.24 |
Interim 6.8ct ; Final 9ct + Special 10ct |
|
M1 |
FY10 (Dec) |
17.5 |
17.5 |
$2.46 |
7.114% |
14.06 |
Interim 6.3ct ; Final 7.7ct + Special 3.5ct |
|
StarHub |
FY10 (Dec) |
15.34 |
20 |
$2.86 |
6.993% |
18.64 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Funds / Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
2H11 (Mar-11) |
A4.0 (Gross) |
$1.150 |
8.792% |
A$0.89 |
2H11 A4.0ct ; 1H11 A4.0ct |
|
MIIF |
1H – Jun11 |
2.75 |
$0.485 |
11.340% |
$0.81 |
1H11 2.75ct ; 2H10 1.5ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.2639) fm Yahoo
NOTES :
- Mkt Price is as on 30-Sep-11
- ComfortDelgro : Q211 (Jun) – 2.7ct
- SBSTransit : Q211 (Jun) – 3.1ct
- MIIF : 1H11 (Jun) – 2.75ct ; 2H10 (Dec) – 1.5ct
- StarHub : Q211 (Jun) – 5ct ; Q111 (Mar) – 5ct
- ST Engg : 1H11 (Jun) – 3ct
- SingPost : Q112 (Jun11) – 1.25ct
- M1 : 1H11 (Jun) – Interim 6.6ct
- SATSvcs : Q411 (Mar11) – Final 6ct + Special 6ct ; Q211 (Sep10) – Interim 5ct
- SPAus : 2H11 (Mar11) – A4ct (before tax) / A3.7721ct (after tax) ; 1H11 (Sep10) – A4ct (before tax) / A3.7772ct (after tax)
- SingTel : 2H11 (Mar11) – Final 9ct + Special 10ct ; 1H11 (Sep10) – Interim 6.8ct
- SMRT : Q411 (Mar) – Final 6.75ct ; Q211 (Sep10) – Interim 1.75ct
- SPH : 1H11 (Feb) – 7ct
- StarHub : FY11 Div Guidance – 5ct/Q