SingTel – OCBC
Soft 1Q12 underlying earnings; but still defensive
1Q12 results slightly short. SingTel reported its 1Q12 results this morning, with revenue rising 7.4% YoY (but down 0.8% QoQ) to S$4605.2m, or around 0.7% ahead of our forecast, with both Singapore and Australian businesses recording healthy revenue growth. While operating EBITDA also grew by 2.3% YoY, it fell 7.7% QoQ to S$1284.1m; this as Optus recorded seasonally lower EBITDA across all business segments (including impact of a writeback of outpayment provision in 4Q11). Also lower was the overall operating EBITDA margin, which slipped from 29.3% in 1Q11 to 27.9% in 1Q12; this was mainly due to the 4.7 percentage point (ppt) fall in Optus’ margin, but mitigated by the 3.2 ppt recovery in Singapore. Reported net profit slipped 2.9% YoY and 7.6% QoQ to S$916.2m, but underlying earnings saw a bigger 7.4% YoY and 12.5% QoQ slump to S$873.0m, falling 11.8% short of our estimate; this mainly due to an exceptional item of S$61m.
Softer associates showing due to forex. Associates pretax profits fell 9.2% YoY and 2.7% QoQ to S$500m; negatively impacted by foreign exchange movements. SingTel noted that major regional currencies depreciated between 4.7% and 18.9% YoY or down some 1.7-6.5% QoQ (with the exception of IDR which rose 0.7%). Even in constant FX term, SingTel revealed that associate pre-tax earnings eased by 3.1% YoY; the drag coming mainly from Bharti, which fell 20% YoY in local currency terms, as earnings were impacted by higher interest costs, depreciation and reduction of tax holiday benefits.
Maintains FY12 guidance. Nevertheless, SingTel has retained its guidance for FY12. For Singapore, it expects operating revenue to growth at low single-digit level, driven by higher mobile and mio TV revenue; it also expects operating EBITDA to be stable (achieved 35.2% margin in FY11); capex to be ~S$900m (upgrade mobile data network etc) and free cashflow to come in ~S$1.3b. For Australia, it expects operating revenue and EBITDA to grow at low single-digit levels; it also expects to generate free cashflow of A$1b after spending A$1.2b on capex. On the associates front, SingTel expects ordinary dividends to remain stable (came in ~S$2,141m in FY11).
Maintain BUY. Given that 1Q12 underlying earnings met only 21.6% of our full-year forecast, we reduce our FY12 estimate by 3.6% (FY13 by 3.5%) to incorporate softer margin assumptions for Optus and also lower associate contributions. But because of the higher market value of its associates, our fair value remains unchanged at S$3.64. We also continue to like SingTel for its defensive earnings. Maintain BUY.
SingTel – OCBC
Soft 1Q12 underlying earnings; but still defensive
1Q12 results slightly short. SingTel reported its 1Q12 results this morning, with revenue rising 7.4% YoY (but down 0.8% QoQ) to S$4605.2m, or around 0.7% ahead of our forecast, with both Singapore and Australian businesses recording healthy revenue growth. While operating EBITDA also grew by 2.3% YoY, it fell 7.7% QoQ to S$1284.1m; this as Optus recorded seasonally lower EBITDA across all business segments (including impact of a writeback of outpayment provision in 4Q11). Also lower was the overall operating EBITDA margin, which slipped from 29.3% in 1Q11 to 27.9% in 1Q12; this was mainly due to the 4.7 percentage point (ppt) fall in Optus’ margin, but mitigated by the 3.2 ppt recovery in Singapore. Reported net profit slipped 2.9% YoY and 7.6% QoQ to S$916.2m, but underlying earnings saw a bigger 7.4% YoY and 12.5% QoQ slump to S$873.0m, falling 11.8% short of our estimate; this mainly due to an exceptional item of S$61m.
Softer associates showing due to forex. Associates pretax profits fell 9.2% YoY and 2.7% QoQ to S$500m; negatively impacted by foreign exchange movements. SingTel noted that major regional currencies depreciated between 4.7% and 18.9% YoY or down some 1.7-6.5% QoQ (with the exception of IDR which rose 0.7%). Even in constant FX term, SingTel revealed that associate pre-tax earnings eased by 3.1% YoY; the drag coming mainly from Bharti, which fell 20% YoY in local currency terms, as earnings were impacted by higher interest costs, depreciation and reduction of tax holiday benefits.
Maintains FY12 guidance. Nevertheless, SingTel has retained its guidance for FY12. For Singapore, it expects operating revenue to growth at low single-digit level, driven by higher mobile and mio TV revenue; it also expects operating EBITDA to be stable (achieved 35.2% margin in FY11); capex to be ~S$900m (upgrade mobile data network etc) and free cashflow to come in ~S$1.3b. For Australia, it expects operating revenue and EBITDA to grow at low single-digit levels; it also expects to generate free cashflow of A$1b after spending A$1.2b on capex. On the associates front, SingTel expects ordinary dividends to remain stable (came in ~S$2,141m in FY11).
Maintain BUY. Given that 1Q12 underlying earnings met only 21.6% of our full-year forecast, we reduce our FY12 estimate by 3.6% (FY13 by 3.5%) to incorporate softer margin assumptions for Optus and also lower associate contributions. But because of the higher market value of its associates, our fair value remains unchanged at S$3.64. We also continue to like SingTel for its defensive earnings. Maintain BUY.
SingTel – DBSV
Flip Flop from Optus
At a Glance
• 1Q12 underlying profit of S$873m (-7% YoY, -13% QoQ) was 5% below ours and 8% below consensus
• Optus was the key disappointment especially after posting impressive earnings in 4Q11
• Management maintained its EBITDA guidance for Singapore & Australia. HOLD for 6% yield at 12x FY12F PE (historic average 13.4x)
Flip flop from Optus. Optus’ net profit of A$174m (+2.5% YoY, -33% QoQ) was significantly below expectations. 1Q12 EBITDA of A$560m saw a sharp decline of 17% QoQ from a seasonally strong 4Q11 as EBITDA margins declined to 24.2% from 28.9% in 4Q11, even lower than 24.5% in 1Q11. Optus continues to face pricing pressure from competitors in the mobile segment. This was also reflected in blended ARPU decline of 2.8% QoQ to A$45. This may imply risk to Optus’ FY12F guidance of low-single digit growth in EBITDA, in the light of exceptionally high EBITDA base in 4Q11. A potentially lower mobile termination rate is also a risk for Optus.
Singapore performance was inline. Singapore’s net profit of S$328m (-12% YoY, +8% QoQ) was largely inline keeping in mind that higher content cost was absent in 1Q11. With 1Q12 EBITDA of S$567m (-4% YoY, +3% QoQ) there is little risk to stable EBITDA guidance.
Associate contribution hit by weak Bharti and strong SGD. Associate net profit contribution of S$362m (-12% YoY, -4% QoQ) continued to decline as Bharti’s earnings contribution of S$103m declined by 37% YoY and 20% QoQ. Strong Singapore dollar versus Indian Rupee, Indon Rupiah, Thai Baht and Philippine Peso further dragged earnings.
With 3% earning growth in FY12F, investors might appreciate regular yield exceeding 6%. Our FY12F earnings are 2% below consensus already. SingTel may not outperform unless earnings payout ratio is raised above 80% or capital management is performed more frequently in our view.
SingTel – DBSV
1Q12F may disappoint
• SingTel may report 1Q12F earnings of S$920m (-2% YoY) on 11th Aug, slightly below street expectations.
• The key negatives would be weak Singapore earnings besides lower contribution from Bharti
• In the long term, Bharti should improve although Singapore & Australia may face more challenges. HOLD for 6% yield at 12x FY12F PE (Hist. average 13.4x)
1Q12F results on 11th Aug may be unexciting. We estimate that SingTel may report 1Q12F earnings of S$920m (-2% YoY, – 8% QoQ). This may be slightly below the street expectations of flat to low-single digit growth in earnings
Singapore earnings could be the key disappointment Management has guided for stable Singapore EBITDA in FY12F taking into account high content cost for full FY12F and competitive pressures in the enterprise broadband business. However, depreciation & amortization expenses have been rising in the light of higher capex for mobile & submarine networks along with IT infrastructure. So stable EBITDA may not translate into stable net earnings. We estimate that 1Q12F Singapore earnings could decline 15% YoY, although improve 4% QoQ. Optus earnings may decline 17% QoQ, as 4Q11 (seasonally strongest quarter) benefited from one-off cost savings.
Associate contribution can slip marginally. Bharti reported 14% QoQ decline in 1Q12 earnings, which can partly be offset by 10% QoQ growth at Telkomsel. However, overall associates’ contribution may decline 3% QoQ due to strong Singapore dollar versus regional currencies (INR & PHP).
With 3% earning growth in FY12F, investors might appreciate regular yield exceeding 6%. SingTel is trading at ~12x FY12F PE below its four-year average of 13.2x. However, we believe that SingTel may not outperform unless earnings payout ratio is raised above 80% or capital management is performed more frequently. HOLD with SOP-based TP of S$3.20.
STEng – BT
Warthog keeping Taliban at bay
Vehicle’s success has led to a rethink on British tactics in Afghanistan
EVEN as hardware made by Singapore Technologies Engineering (STE) were put through their paces by the Singapore Armed Forces (SAF) at the National Day Parade yesterday, a tracked fighting carrier made by the group has continued to win battlefield accolades in the service of British forces.
In a report last Friday, The (London) Telegraph highlighted the success of the Warthog, a 22-ton tracked armoured vehicle whose off-road ability allows it to frequently outflank the fleet-footed Taliban in Afghanistan. The vehicle’s success has led to a rethink on British tactics as it is not only able to deliver troops and supplies, it can also bring down heavy firepower from unexpected directions, the paper said.
The Warthog, a variant of the Bronco which is used by the SAF, can carry up to a dozen soldiers who can be deployed either to fight insurgents or engage with the local population to build up an intelligence picture of tribal communities.
‘It has almost certainly saved lives after 11 Warthogs were hit in one tour by large IEDs (Improvised Explosive Device) without anyone inside being killed although two were badly wounded,’ The Telegraph reported. The Warthog has also proved adept at being able to drive through the notoriously difficult terrain of Helmand province’s irrigated ‘green zone’.
In one epic six-week-long battle earlier this year, the vehicles provided a perimeter defence for the Royal Engineers as they laid a key road in central Helmand called Route Trident. With heavy weaponry such as heavy machine guns and grenade launchers, the Warthogs kept the Taliban at bay.
‘You can put Warthog into places you would not dream of with other armoured vehicles as it has very low ground pressure giving us the ability to move around the battlespace in a completely different way,’ Major James Cameron, the 2nd Royal Tank Regiment squadron commander, the first to use the vehicle on operations, was quoted as saying. ‘We have been able to manoeuvre in an extraordinary way. Literally we can go over ditches, swim rivers or go up ravines getting right in behind the enemy where they least expect us. We run on them at speed and before they know anything about it we are right on top of them.’
Towards the end of the unit’s six-month tour, radio intelligence showed that Taliban commanders were warning their men, ‘Don’t fire at the tank’.
The Warthog was first introduced to the British forces in 2009. It was the first armoured vehicle to be built for a Western army by an Asian company. When ST Kinetics, the land division of STE, won a £150 million contract for 115 vehicles from the British, it represented a major breakthrough for the Singapore company.
STE produced the first Warthog within nine months of the order, on time and ahead of schedule although there was a delay of several months as the armour protection was improved. The Warthog was ordered to replace the BAE Systems’ Viking, which is being withdrawn from service after almost a quarter of the fleet was destroyed by Taliban bombs.
STE beat BAE Systems, which had offered a Viking II variant, to the British contract.