StarHub – DBSV
Wait for better entry point after recent outperformance
• 1Q11 net profit of S$69m was at the lower end of expectations due to higher iPhone4 sales.
• Surprisingly, subscriber base declined for postpaid mobile and increased for pay TV & broadband segments.
• Declared expected 5 Scts quarterly DPS. Downgrade to HOLD for limited 3% upside potential to our TP.
Net
profit stood at S$69m (+60% YoY, -14 QoQ) versus our estimate of S$72-74m. Key reason was higher costs including (i) equipment costs which rose sequentially by S$8m to S$84m due to higher sale of iPhone 4, indicating slow adoption of Android phones in Singapore (ii) marketing costs rose sequentially by S$5m to S$42.5m due to promotional initiatives to drive take-up of multi-services hubbing packs.
Subscriber base declined across mobile but increased for pay TV & broadband. Post-paid mobile subscriber base declined by 5K sequentially to reach 1031K, due to: (i) some customers switching from data-only plans to bundled voice & data plans, and (ii) churn initiated by StarHub for non-paying customers subsequent to the implementation of business support system in 4Q10. This decline was one-off and management expects to see higher mobile subscriber base going forward. Higher marketing costs, on the other hand, boosted sequential growth in subscriber base for (i) pay TV by 4K to 542K and (ii) broadband by 3K to 325K.
Downgrade to HOLD. StarHub has outperformed STI by ~7% year to date excluding its quarterly dividends. We see limited upside potential of 3% to our DCF-based (WACC 7.6%, terminal growth 0%) TP of S$2.90. However, 7.1% dividend yield continues to be the key attraction of StarHub. We prefer SingTel as a cheap proxy to Bharti’s growth with a cushion of 6% yield.
StarHub – BT
StarHub Q1 net soars 62% to $69m
THE popularity of smartphones has turned from bane to boom for StarHub in one year with the operator’s first-quarter net profit soaring 62.1 per cent to $69.1 million, from $42.7 million a year earlier.
Earnings per share for the three months ended March 31 came in at 4.03 cents, up from 2.49 cents last year. Q1 sales stayed flat at $558.5 million.
Last year, the operator’s bottom line took a heavy blow in Q1 due to the higher subsidies it had to incur for handsets such as the Apple iPhone.
This time around, the company’s operating expenses fell 5.7 per cent year-on-year to $470.8 million.
This is largely due to a 13 per cent reduction in its cost of sales to $216.4 million as smartphone sales have started to wane in light of growing saturation. According to StarHub, 70 per cent of its post-paid mobile customers are already using these newfangled handsets.
With the smartphone drag lifted, the operator’s mobile revenue grew 3.3 per cent to $295.6 million. Its cellular subscriber base remained unchanged at 2.15 million.
However, the cellular units of StarHub and its rivals could be adversely impacted from the current quarter onwards as the Singapore and Malaysian authorities have agreed to slash auto-roaming costs 20 per cent from this month and a further 10 per cent next year.
Malaysia is one of the top roaming destinations for local operators.
Some analysts expect local telcos to be hit harder in comparison to their Malaysian counterparts as a larger proportion of their revenue comes from auto-roaming tariffs.
‘Our revenue will come down but our costs will also come down accordingly. We’re hoping lower prices means they (customers) will be keener to roam. It might have a positive impact overall,’ StarHub CEO Neil Montefiore said in a conference call yesterday.
Besides the mobile segment, two of StarHub’s three remaining business lines also turned in a better Q1 scorecard.
Its broadband revenue edged up 0.6 per cent to $59.9 million. Sales from fixed network services rose 4.6 per cent year-on-year to $83.6 million, helped by the take-up of the so-called Next-Gen NBN (Nationwide Broadband Network) services on Singapore’s new fibre-optic Internet backbone.
Singapore Telecommunications claims it has attracted half of the estimated 16,000 customers who have signed up for Next-Gen NBN packages, while M1 said its market share is around one-third.
StarHub declined to reveal the take-up for fibre-optic services but Mr Montefiore said it has been ‘slower than expected’.
StarHub’s pay-TV sales dipped 10 per cent in the first quarter to $92 million after it halved its sports group pricing following the loss of its Barclays Premier League broadcast rights to SingTel.
After taking a slight dip initially, StarHub’s cable television subscriber base grew by 4,000 users year-on-year to 542,000 in Q1.
‘We were focusing on the lower-income groups. That strategy has worked very well,’ StarHub’s chief operating officer Tan Tong Hai explained.
The operator has proposed an interim dividend of five cents per share for its first-quarter performance, unchanged from last year.
StarHub shares closed four cents lower yesterday at $2.80 before its earnings were released.
StarHub – BT
StarHub Q1 net soars 62% to $69m
THE popularity of smartphones has turned from bane to boom for StarHub in one year with the operator’s first-quarter net profit soaring 62.1 per cent to $69.1 million, from $42.7 million a year earlier.
Earnings per share for the three months ended March 31 came in at 4.03 cents, up from 2.49 cents last year. Q1 sales stayed flat at $558.5 million.
Last year, the operator’s bottom line took a heavy blow in Q1 due to the higher subsidies it had to incur for handsets such as the Apple iPhone.
This time around, the company’s operating expenses fell 5.7 per cent year-on-year to $470.8 million.
This is largely due to a 13 per cent reduction in its cost of sales to $216.4 million as smartphone sales have started to wane in light of growing saturation. According to StarHub, 70 per cent of its post-paid mobile customers are already using these newfangled handsets.
With the smartphone drag lifted, the operator’s mobile revenue grew 3.3 per cent to $295.6 million. Its cellular subscriber base remained unchanged at 2.15 million.
However, the cellular units of StarHub and its rivals could be adversely impacted from the current quarter onwards as the Singapore and Malaysian authorities have agreed to slash auto-roaming costs 20 per cent from this month and a further 10 per cent next year.
Malaysia is one of the top roaming destinations for local operators.
Some analysts expect local telcos to be hit harder in comparison to their Malaysian counterparts as a larger proportion of their revenue comes from auto-roaming tariffs.
‘Our revenue will come down but our costs will also come down accordingly. We’re hoping lower prices means they (customers) will be keener to roam. It might have a positive impact overall,’ StarHub CEO Neil Montefiore said in a conference call yesterday.
Besides the mobile segment, two of StarHub’s three remaining business lines also turned in a better Q1 scorecard.
Its broadband revenue edged up 0.6 per cent to $59.9 million. Sales from fixed network services rose 4.6 per cent year-on-year to $83.6 million, helped by the take-up of the so-called Next-Gen NBN (Nationwide Broadband Network) services on Singapore’s new fibre-optic Internet backbone.
Singapore Telecommunications claims it has attracted half of the estimated 16,000 customers who have signed up for Next-Gen NBN packages, while M1 said its market share is around one-third.
StarHub declined to reveal the take-up for fibre-optic services but Mr Montefiore said it has been ‘slower than expected’.
StarHub’s pay-TV sales dipped 10 per cent in the first quarter to $92 million after it halved its sports group pricing following the loss of its Barclays Premier League broadcast rights to SingTel.
After taking a slight dip initially, StarHub’s cable television subscriber base grew by 4,000 users year-on-year to 542,000 in Q1.
‘We were focusing on the lower-income groups. That strategy has worked very well,’ StarHub’s chief operating officer Tan Tong Hai explained.
The operator has proposed an interim dividend of five cents per share for its first-quarter performance, unchanged from last year.
StarHub shares closed four cents lower yesterday at $2.80 before its earnings were released.
SingPost – OCBC
Prioritising for the future
4QFY11 results in line with expectations. Singapore Post (SingPost) reported a 7.7% rise in revenue to S$565.5m and a 2.4% drop in net profit to S$161.0m in FY11, such that results were 0.8% and 3% shy of our estimates, respectively. However, if we were to exclude one-off items such as the amortization of deferred gain on intellectual property rights, and benefits from the Jobs Credit Scheme, underlying net profit actually rose by 1.2%. Free cash flow (net cash inflow from operating activities less capex) remained healthy at S$174.6m in FY11 compared to S$196m and S$155m in FY10 and FY09, respectively.
Decent performance from mail and logistics. The mail and logistics segments registered better performances in 4QFY11, with the former growing 4.3% YoY and the latter by 11.6%. Domestic mail traffic increased on the back of a buoyant business environment, while international mail traffic rose in tandem with the growth in e-commerce activities. Higher logistics revenue was mainly due to higher contributions from Speedpost, trans-shipment and vPOST shipping activities.
Prioritising for the future. SingPost has laid out its priorities for the future: 1) to grow regional logistics, focusing on warehousing, fulfillment and end-delivery in Asia Pacific, 2) grow the e-fulfilment business by strengthening Quantium Solutions, and 3) drive growth through e-commerce. The group is keen to grow the logistics business, and is looking at building a full suite of services in order to scale up the value chain. If executed well, this should result in higher margins compared to a company with pure logistics operations (industry is currently competitive, resulting in relatively low margins). Meanwhile, the group is also banking on the e-commerce business which holds potential for growth – Singaporeans are spending more on online shopping, purchasing from both local and overseas merchants.
Maintain HOLD. In line with the group’s usual practice, a final dividend of 2.5 S cents per share has been recommended, bringing the full year dividend to 6.25 S cents. This translates to a 5.4% dividend yield based on last closing price. We continue to like the stock for the stable cash flows and prudent management, and await more news on the M&A front. Our fair value estimate increases to S$1.21 (prev. S$1.16) as we roll forward our DCF valuation (8.11% cost of equity, 2% terminal growth). However, given limited upside potential, we maintain our HOLD rating.
SMRT – DBSV
4Q above, but cost headwinds linger
At a Glance
• 4Q/FY11 results above ours but within consensus’ expectations
• Strong 4Q growth due to low base in 4Q10 and lower-than-expected rise in electricity, diesel and staff costs
• Cost concerns likely to linger, especially with volatile oil price, which is unhedged
• Maintain Hold, TP revised slightly to S$2.08
Comment on Results
4Q/FY11 results in above. SMRT’s 4Q net profit at S$34m (+50% y-o-y) was above ours, but within market expectations. FY11 posts a marginal decline of 1.1% in net profit to S$161.1m, vs our forecast of S$148m due to a lower than expected rise in electricity/diesel, and staff costs. 4Q EBIT margins improved to 16.9% (4Q10: 12%) as costs rose by a slower clip than topline. A 6.75 Scts final dividend was proposed; coupled with interim dividend of 1.75 Scts equates to a payout of 80% (FY10: 8.5 Scts).
Rail and rental remain key EBIT contributors, collectively accounting for c.97% of Group’s EBIT. This is partially offset by losses from Taxis (-S$3.9m), Buses (-S$1.8m), and LRT (-S$0.1m). Taxi losses came about from higher depreciation, insurance costs, and write off of property, plant and equipment.
Circle Line (CCL) still below breakeven, but losses narrowed. Average ridership at CCL is currently around 180k/day, which is a marked improvement from the 30k/day when it first started. Operating losses continued, but has narrowed, as it is still below the 200k/day, which is estimated for breakeven.
Recommendation
Maintain Hold, TP revised slightly to S$2.08. Despite a better than expected performance in 4Q, we expect cost pressures to continue to plague the bottomline. This should come about from the volatile oil prices (which currently remains unhedged), coupled with higher staff costs. We believe these concerns will linger and cap share price gains in the near future, with support from a healthy yield of c.4.5%. As such, we maintain our Hold recommendation with a PE/DCF backed TP of S$2.08.