SATS – OCBC
New competition unlikely to affect SATS
Third ground handling license at Changi Airport awarded. Changi Airport Group (CAG) recently announced that it awarded a third ground handling license (for 10 years) at Singapore Changi Airport to US-based Aircraft Service International Group (ASIG). ASIG will now compete with SATS Ltd and Changi International Airport Services (CIAS) for airline customers in both full service and low-cost carrier segments to provide quality and cost competition for services that include passenger and cargo handling servicing, and ramp handling. In operation since 1947, ASIG has a wide portfolio of airline customers both in the US and Europe that include Vigin Atlantic, JetBlue and Ryanair. It also currently has refueling operations at Suvarnabhumi Airport in Bangkok. The third license comes two years following Swissport International’s withdrawal of operations in Apr 2009 after sustaining losses in excess of US$50m over its four years of operations.
Price competition expected going forward. Based on precedence, we expect the two existing players to pose stiff competition to ASIG. In a press release issued by the Civil Aviation Authority of Singapore (CAAS) back in 2009 when Swissport withdraw its operations, it noted that ground handling rates fell by an average of 15% during the time Swissport was in operations. In a Business Times article on 31 Mar 2008, Swissport blamed “massive undercutting” as one of the key challenges it faced, although the allegations were refuted by its rivals. The re-emergence of a new handler will likely reignite and re-energize competition, and will provide airlines with more options as well as increase their leverage in price negotiations.
SATS to maintain dominance but will face some price pressures. As the dominant player, SATS controls about 80% of the business in Changi. While we anticipate some potential customer losses and potential reduction in ground handling rates, we believe that its regional size advantage and operational experience will not only allow it to survive any price competitions but also to dictate the extent of any potential price reductions. As such, we expect similar reduction of ground handling rates of about 15% going forward once ASIG commences operations, especially given the somewhat stagnant global economic recovery where passenger traffic maybe affected in the near- to medium-term. Besides size advantage, SATS also provides a wide range of unique and integrated services that differentiates itself from its competition and may promote customer loyalty. This market leadership should continue to favour SATS in the face of new competition. We fine-tuned our fair value estimate to S$3.02 (S$3.06 previously) to incorporate anticipated price competition and maintain our BUY rating.
SPH – OCBC
Upgrade to BUY; awaiting capital deployment
Almost got the Jurong Gateway site… A consortium, made up of Singapore Press Holdings (SPH) and United Engineers Limited, recently bid S$917m for a site beside Jurong East MRT station, and only 5.4% below the winning bid. This outcome was similar to a Bedok site auction in Sep 10. We think these strong tenders from SPH underline its desire to expand their retail landlord business. As of 2Q11, we estimate SPH to have a sizeable acquisition war-chest of S$1,265m, assuming a net gearing ceiling of 70%.
…but more GLS auctions to come. We think there are three sites in the 2H11 GLS supply that could be of interest to SPH. The commercial site beside Paya Lebar MRT, with a large GFA of 86,940 sqm, could have a significant retail component after setting aside the minimum office and hotel requirements. In addition, the commercial site beside Fernvale LRT could house a retail development with 26,400 sqm GFA – around the size of Clementi Mall. There is also a white site on the reserve list beside Novena MRT with potentially 19,400 sqm retail GFA after taking out the estimated minimum hotel requirement.
TripleOne and 313@Somerset potential targets? Market talk is that TripleOne Somerset is on the market for about S$1.2b ($2,132 psf NLA) and that 313@Somerset could be for sale as well. These may be interesting targets for SPH who could derive operational synergies between managing Paragon and any one of these assets, particularly 313@Somerset. Given the sizes of these assets, however, it is more likely for SPH to consider acquiring a stake or participating in a joint venture instead of acquiring these assets wholly.
Successful execution at Clementi Mall. Clementi Mall has opened for operations smoothly. The mall is fully leased with an average monthly rent of S$14 psf. Clementi Mall highlights SPH’s retail management capabilities in a suburban location and the market would likely view similar acquisitions favorably. We forecast annual revenue at around S$30m from Clementi Mall after 4Q11.
Upgrade to BUY on valuation. The current price of S$3.81 indicates an upside of 13.4% against our S$4.32 fair value. In addition, the downside is limited by an attractive dividend yield of 7.1%, which is underpinned by a core newspaper segment yielding solid recurrent cash. Look for accretive acquisitions to be positive catalysts in FY11-12. We are upgrading SPH to BUY with a fair value estimate of S$4.32.
SPH – OCBC
Upgrade to BUY; awaiting capital deployment
Almost got the Jurong Gateway site… A consortium, made up of Singapore Press Holdings (SPH) and United Engineers Limited, recently bid S$917m for a site beside Jurong East MRT station, and only 5.4% below the winning bid. This outcome was similar to a Bedok site auction in Sep 10. We think these strong tenders from SPH underline its desire to expand their retail landlord business. As of 2Q11, we estimate SPH to have a sizeable acquisition war-chest of S$1,265m, assuming a net gearing ceiling of 70%.
…but more GLS auctions to come. We think there are three sites in the 2H11 GLS supply that could be of interest to SPH. The commercial site beside Paya Lebar MRT, with a large GFA of 86,940 sqm, could have a significant retail component after setting aside the minimum office and hotel requirements. In addition, the commercial site beside Fernvale LRT could house a retail development with 26,400 sqm GFA – around the size of Clementi Mall. There is also a white site on the reserve list beside Novena MRT with potentially 19,400 sqm retail GFA after taking out the estimated minimum hotel requirement.
TripleOne and 313@Somerset potential targets? Market talk is that TripleOne Somerset is on the market for about S$1.2b ($2,132 psf NLA) and that 313@Somerset could be for sale as well. These may be interesting targets for SPH who could derive operational synergies between managing Paragon and any one of these assets, particularly 313@Somerset. Given the sizes of these assets, however, it is more likely for SPH to consider acquiring a stake or participating in a joint venture instead of acquiring these assets wholly.
Successful execution at Clementi Mall. Clementi Mall has opened for operations smoothly. The mall is fully leased with an average monthly rent of S$14 psf. Clementi Mall highlights SPH’s retail management capabilities in a suburban location and the market would likely view similar acquisitions favorably. We forecast annual revenue at around S$30m from Clementi Mall after 4Q11.
Upgrade to BUY on valuation. The current price of S$3.81 indicates an upside of 13.4% against our S$4.32 fair value. In addition, the downside is limited by an attractive dividend yield of 7.1%, which is underpinned by a core newspaper segment yielding solid recurrent cash. Look for accretive acquisitions to be positive catalysts in FY11-12. We are upgrading SPH to BUY with a fair value estimate of S$4.32.
SPH – Kim Eng
Be content with stability
Event
• Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings (SPH) to become more aggressive in seeking future projects. Or, it could just put property acquisition plans on the back burner as there are fewer sites that meet its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. We also identify a revaluation boost for Paragon as a potential catalyst, even though the chances of it occurring are still remote for now. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating but at a lower target price of $4.60.
Our View
• In May this year and September last year, SPH failed to secure the White Site at Boon Lay Way and the mixed‐used site at Bedok Town Centre, respectively. Fewer commercial plots are now available with nearly all sites on the Confirmed List of the 2H11 Government Land Sales (GLS) Programme slated for residential use and a White Site on the Reserve List catering to Grade A office use. With neither segment the focus of SPH’s property development division, we rule out land acquisition as a near‐term catalyst.
• The group’s commercial properties appear to be doing well. We expect Clementi Mall, which became fully operational last month, to achieve gross rental revenue of $32.5m pa by FY Aug12. Paragon, on the other hand, is benefitting from positive rental reversions. If market buzz is true that Australian property group Lend Lease is seeking to divest its stake in the neighbouring retail mall, 313@Somerset, at $4,400‐4,800 psf net lettable area, Paragon’s valuation may get a boost. It currently is valued at around $3,200 psf compared to Ion Orchard whose valuation stands at $4,169 psf.
Action & Recommendation
SPH’s core media and retail mall rental businesses will continue to hinge on domestic consumption growth. The plan to use Apple’s and Google’s subscription platforms to boost its subscription base is positive for the longer term. The return of surplus cash as dividends is another potential catalyst. However, a key risk is that management might bid aggressively for property projects. Maintain BUY with target price lowered to $4.60 (previously $4.68).
SPH – Kim Eng
Be content with stability
Event
• Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings (SPH) to become more aggressive in seeking future projects. Or, it could just put property acquisition plans on the back burner as there are fewer sites that meet its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. We also identify a revaluation boost for Paragon as a potential catalyst, even though the chances of it occurring are still remote for now. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating but at a lower target price of $4.60.
Our View
• In May this year and September last year, SPH failed to secure the White Site at Boon Lay Way and the mixed‐used site at Bedok Town Centre, respectively. Fewer commercial plots are now available with nearly all sites on the Confirmed List of the 2H11 Government Land Sales (GLS) Programme slated for residential use and a White Site on the Reserve List catering to Grade A office use. With neither segment the focus of SPH’s property development division, we rule out land acquisition as a near‐term catalyst.
• The group’s commercial properties appear to be doing well. We expect Clementi Mall, which became fully operational last month, to achieve gross rental revenue of $32.5m pa by FY Aug12. Paragon, on the other hand, is benefitting from positive rental reversions. If market buzz is true that Australian property group Lend Lease is seeking to divest its stake in the neighbouring retail mall, 313@Somerset, at $4,400‐4,800 psf net lettable area, Paragon’s valuation may get a boost. It currently is valued at around $3,200 psf compared to Ion Orchard whose valuation stands at $4,169 psf.
Action & Recommendation
SPH’s core media and retail mall rental businesses will continue to hinge on domestic consumption growth. The plan to use Apple’s and Google’s subscription platforms to boost its subscription base is positive for the longer term. The return of surplus cash as dividends is another potential catalyst. However, a key risk is that management might bid aggressively for property projects. Maintain BUY with target price lowered to $4.60 (previously $4.68).