SingTel – BT
SingTel Q3 profit notches up 0.8%
The telco was dragged by weak performance from regional associates
A WEAKER performance across most of Singapore Telecommunications’ (SingTel) key regional associates resulted in a largely flaccid third quarter for the company, with its net profit inching up 0.8 per cent to $998 million, from $991 million a year earlier.
Earnings per share for the three months ended Dec 31, 2010, rose marginally to 6.27 cents, from 6.22 cents a year earlier. Operating revenue grew 5.7 per cent to $4.7 billion, from $4.45 billion.
The result was better than the average net income forecast of $925 million from four analysts polled by Bloomberg. Industry watchers had issued a more ominous forecast for SingTel’s third-quarter results due to the continued weakening of its associate earnings, in particular from Indian operator Bharti.
Share of ordinary pre-tax profits from six regional associates fell 12.8 per cent to $488 million in its fiscal third quarter.
SingTel, which derives 74 per cent of its Ebitda (earnings before interest, tax, depreciation and amortisation) from overseas, continues to be weighed down by the price of Bharti’s expansion into South Africa.
In June last year, Bharti, in which SingTel has a 32 per cent stake, successfully acquired the 15 South African mobile assets belonging to Kuwaiti conglomerate Zain.
As a result, pre-tax profit contributions from the Indian operator fell 21.7 per cent over the year to $184 million in Q3. Bharti’s profitability was impacted by the financing costs of the Zain acquisition as well as foreign currency losses.
It also incurred additional costs from the re-launching of a ‘unified’ Bharti brand across its key markets, according to SingTel Group CEO Chua Sock Koong.
The silver lining, she added, is that Bharti’s operations are showing signs of recovery.
‘In Africa, we’ve seen an improvement in (Bharti’s) Ebitda margin (sequentially),’ she told reporters at the group’s results briefing yesterday.
Beyond Bharti, SingTel’s bottom line was also impacted by poorer performances from Indonesia’s Telkomsel and Filipino operator Globe.
Telkomsel’s pre-tax contributions fell 10 per cent to $214 million and Globe’s contribution plunged 26.6 per cent to $40 million as a result of heightened competition in the two countries.
SingTel’s investments in Pacific Bangladesh Telecom Ltd (PBTL) and Warid continue to be in the red, chalking up pre-tax losses of $4 million and $14 million respectively.
The sole bright spot among the firm’s regional portfolio was AIS in Thailand, which saw its pre-tax contributions climb 31.3 per cent to $68 million in Q3.
However, the Thai operator is now embroiled in a tussle with state-owned telecommunications firm TOT Public company over the latter’s claim for damages.
TOT is seeking compensation from Thai operators, including AIS, for unpaid access charges and alleged losses from controversial concession deals that were sanctioned by past governments.
SingTel’s chief financial officer Jeann Low reiterated AIS’ position that the demands have no legal standing and hence the company did not make a provision for these claims.
However, they have been classified as a ‘contingent liability’ for ‘good corporate governance’, she added.
On its home turf, net income from SingTel’s Singapore operations was up marginally by 1 per cent to $348 million.
Sales and profitability improved across its telco as well as IT and engineering business as the recurring bane of handset subsidies finally started to ease in the third quarter.
Its mio TV revenue stood at $21 million in Q3. The company added 19,000 new pay-television customers during the period to take its tally to 264,000.
SingTel’s Australian unit Optus recorded a 3.9 per cent gain in Q3 net profit to $218 million on the back of strong mobile subscriber growth.
For the first nine months of its current fiscal year, the operator’s group net profit fell 2 per cent to $2.8 billion, while revenue rose 8.3 per cent to $13.4 billion.
SingTel shares closed four cents lower at $3.05 yesterday.
SingTel – CIMB
A mixed bag
• In line. Annualised 9MFY11 core net profit matches CIMB and market expectations with respective variances of -1% and -3%. The results were characterised by: 1) strong contributions by SingTel Singapore as EBITDA margins expanded; 2) higher Optus contributions supported by a 5% qoq rise in the A$; and 3) weak contributions from associates. SingTel has reiterated its guidance. We maintain our earnings forecasts, S$3.29 SOP target price and UNDERPEFORM rating. Likely de-rating catalysts are: 1) regulatory issues in India surrounding one-off fees and renewal fees for spectrum; 2) a more aggressive Telstra in Australia, and 3) margin pressure in Singapore on content costs and mioTV’s expansion. SingTel will be hosting a conference call today at 11am Singapore time.
• Singapore margins expanded. SingTel Singapore had a strong quarter where its EBITDA margins expanded 2.4% pts qoq on the back of lower subscriber acquisition costs, although the last calendar quarter was a festive one. We believe this was due to a low base in the previous quarter when the iPhone 4 was launched. Revenue was also seasonally powered by IT sales as companies completed their projects by year-end. As a result, 3Qcore net profit jumped 18% qoq.
• A$ bolstered Optus’s contributions. Optus’s 3Q revenue rose 7.7% qoq, driven by a 5% qoq appreciation of the A$ against the S$. EBITDA margins were broadly unchanged, while core net profit was flat qoq.
• Associates were weak. Associate 3Q PBT fell 8.5% qoq, dragged down by Telkomsel (-7% qoq), Bharti (-12% qoq) and Globe (-18% qoq). Telkomsel’s contribution was diluted by a 4% qoq depreciation of the rupiah vs. the S$. Its revenue was also affected by “heightened market competition as many aggressive price promotions were launched” while EBITDA was flat qoq in rupiah terms. Bharti’s contribution was affected by fair value losses from mark-to-market valuation of foreign currency liabilities. Globe was affected by stiff competition, on unlimited voice and SMS offerings.
SATS – Phillip
Food for Thought
•Concerns over rising raw material prices is likely to be the main cause of a pullback in the share price
•SATS should be able to pass on cost increase for most of its food business
•Ability to pay out consistent dividends not under threat
•Maintain Buy recommendation with target price of S$3.30.
Dip in share price. We believe that the share price underperformance in the past week could be attributed to two factors: slightly below consensus 3QFY11 results and rising food prices. Prior to the release of results, consensus PATMI estimate was at S$57.3mn (PSR est.: S$51.7mn) as compared to actual results of S$51.2mn. We believe that the quantum of earnings disappointment is not significant as expectations were missed by only 5.2% after adjusting for one off M&A charge of S$3.3mn. We believe that the main cause of a sell down in the stock of SATS is associated with concerns over rising food cost. Hence, we will discuss the implications of rising food prices for SATS in greater detail in this report.
Food Solutions business. Over the past year, Food Solutions business made up 66% of the Group revenue and raw material cost (mainly raw food cost) accounted for 30% of the Group’s total operating cost. After the acquisition of TFK Corporation (consolidated from 4QFY11), Food Solutions business will encompass an even bigger portion of the revenue base of SATS. Therefore, increase in food cost will have a significant impact on the profitability of the Group.
SATS – BT
SATS likely to face rising cost pressures
This prompts some analysts to downgrade the stock; other concerns include integration of new acquisition TFK Corp
GROUND-handler SATS is expected to face intensifying cost pressures from rising food prices and potential competition from the entry of a third ground-handler at Changi Airport, prompting some analysts to downgrade the stock this week.
For the third quarter ended Dec 31, 2010, SATS posted a 4.1 per cent year-on-year drop in net earnings to $51.2 million on the back of higher costs.
Revenue rose marginally, up 1.5 per cent to $440.9 million, as gains from its aviation revenue were offset by a fall in non-aviation revenue, which was hurt by the weaker British pound as well as a three-week cut in the accounting period for its UK-based food manufacturer Daniels Group.
Analysts flagged worsening inflationary pressure on food materials as a key risk.
‘Although management strives to pass on cost increases to its customers and broaden its food sources, we believe there would likely be a time lag,’ DBS Group Research said in a research note.
Another concern is the integration of its latest acquisition, TFK Corporation. Last year, SATS announced that it was acquiring a 50.7 per cent stake in Japan- based airline caterer TFK from Japan Airlines International Co Ltd (JALI) for 7.8 billion yen (S$121.55 million). The acquisition was completed in late December.
‘Urgent action needs to be taken on broadening TFK’s customer base beyond JAL and to rein in the cost structure, especially where wages are concerned. If all goes well, management expects TFK to be profit neutral in FY12 before turning earnings accretive in FY13,’ wrote Kim Eng analyst Gregory Yap in a research note.
Kim Eng downgraded its call on the stock to ‘hold’, trimming its target price from $3.48 previously to $2.93, while CIMB maintained its ‘underperform’ rating on SATS, with a target price of $2.42.
DBS Group Research also called a ‘hold’ on the stock and cut its price target from $3.13 to $2.94, pointing out that there is still uncertainty as to how SATS will be impacted by the entry of a third ground handler at Changi in the first quarter of this year.
SIA Engineering Company (SIAEC), a part of the Singapore Airlines group, is among those in the running, which could mean stiffer competition if SIAEC bags the licence.
However, Phillip Securities Research remained upbeat on the stock, maintaining a ‘buy’ call with a target price of $3.30.
It said that while SATS has to contend with rising food prices and the depreciating British pound, it expects SATS to benefit from the influx of tourists into Singapore as the travel industry continues to register growth.
CIMB also noted that SATS has gained a 10 per cent market share for technical ramp handling at Changi since it was granted a full apron handling licence in May last year.
The counter closed four cents lower at $2.76 on Wednesday.
SATS – BT
SATS likely to face rising cost pressures
This prompts some analysts to downgrade the stock; other concerns include integration of new acquisition TFK Corp
GROUND-handler SATS is expected to face intensifying cost pressures from rising food prices and potential competition from the entry of a third ground-handler at Changi Airport, prompting some analysts to downgrade the stock this week.
For the third quarter ended Dec 31, 2010, SATS posted a 4.1 per cent year-on-year drop in net earnings to $51.2 million on the back of higher costs.
Revenue rose marginally, up 1.5 per cent to $440.9 million, as gains from its aviation revenue were offset by a fall in non-aviation revenue, which was hurt by the weaker British pound as well as a three-week cut in the accounting period for its UK-based food manufacturer Daniels Group.
Analysts flagged worsening inflationary pressure on food materials as a key risk.
‘Although management strives to pass on cost increases to its customers and broaden its food sources, we believe there would likely be a time lag,’ DBS Group Research said in a research note.
Another concern is the integration of its latest acquisition, TFK Corporation. Last year, SATS announced that it was acquiring a 50.7 per cent stake in Japan- based airline caterer TFK from Japan Airlines International Co Ltd (JALI) for 7.8 billion yen (S$121.55 million). The acquisition was completed in late December.
‘Urgent action needs to be taken on broadening TFK’s customer base beyond JAL and to rein in the cost structure, especially where wages are concerned. If all goes well, management expects TFK to be profit neutral in FY12 before turning earnings accretive in FY13,’ wrote Kim Eng analyst Gregory Yap in a research note.
Kim Eng downgraded its call on the stock to ‘hold’, trimming its target price from $3.48 previously to $2.93, while CIMB maintained its ‘underperform’ rating on SATS, with a target price of $2.42.
DBS Group Research also called a ‘hold’ on the stock and cut its price target from $3.13 to $2.94, pointing out that there is still uncertainty as to how SATS will be impacted by the entry of a third ground handler at Changi in the first quarter of this year.
SIA Engineering Company (SIAEC), a part of the Singapore Airlines group, is among those in the running, which could mean stiffer competition if SIAEC bags the licence.
However, Phillip Securities Research remained upbeat on the stock, maintaining a ‘buy’ call with a target price of $3.30.
It said that while SATS has to contend with rising food prices and the depreciating British pound, it expects SATS to benefit from the influx of tourists into Singapore as the travel industry continues to register growth.
CIMB also noted that SATS has gained a 10 per cent market share for technical ramp handling at Changi since it was granted a full apron handling licence in May last year.
The counter closed four cents lower at $2.76 on Wednesday.