SingTel – CIMB
Expect a mixed 2QFY11 performance
2QFY11 results preview
Likely muted; maintain UNDERPERFORM. We expect SingTel’s 2QFY11 core net profit to be about S$950m, flat qoq and yoy on a mixed bag of factors: 1) contributions from Telkomsel should rebound, bolstered by a strong rupiah; 2) Optus should continue to grow; 3) SingTel Singapore’s margins should decline due to content costs and iPhone 4 subsidies; and 4) weaker numbers from Bharti due to 3G spectrum related interest expense and amortisation, and full-quarter losses from Africa. We estimate an interim DPS of 6.5cts or a 55% payout (6.2cts, 52% in 1HFY10). We maintain our SOP-based target price of S$3.09 with a view to rolling it 1-year forward after the results announcement on 11 Nov. Likely de-rating catalysts are weak numbers from India and Singapore and concerns over rising competition in Australia. M1 and Axiata remain our top Singapore and regional telco picks respectively.
The news
We expect SingTel’s 2QFY11 core net profit to be about S$950m, flat qoq and yoy on a mixed bag of factors:
• Contributions from Telkomsel should rebound, bolstered by a strong rupiah. Telkomsel’s 3Q10 core net profit grew 6% qoq while the rupiah had appreciated 2% against the S$.
• Optus should continue to grow although its margins may succumb to pressure from iPhone 4 subsidies. The A$ was relatively unchanged qoq. However, these should be largely offset by:
• Weaker margins in SingTel Singapore due to World Cup and Barclays Premier League-related costs, mio-TV installation costs, and iPhone 4 subsidies, and
• Lower contributions from Bharti which is likely to book full-quarter losses from Africa, interest expense and amortisation related to the acquisition of its 3G spectrum and amortisation. Bharti began amortising the spectrum from 1 September. The rupee rose 5% qoq against the S$.
We anticipate an interim DPS of 6.5 cts or a 55% dividend payout vs. 6.2 cts or a 52% payout in 1HFY10, facilitated by a net debt/EBITDA ratio of only 0.23x vs. 0.3-0.4x in FY09-10.
Valuation and recommendation
We reiterate our UNDERPERFORM rating and SOP-based target price of S$3.09. We plan to roll over our target price 1-year forward after the results announcement. Likely de-rating catalysts are weak numbers from India and Singapore and concerns over rising competition in Australia. We believe SingTel does not appeal in terms of growth or dividends with its low EPS growth and moderate dividend yields of 5%. For exposure to the Singapore telecom sector and regional telcos, we prefer M1 and Axiata respectively.
Yield Stocks – BT
High-yield, low-payout stocks stand out
Strategy tends to outperform others in most rising markets
INVESTING in stocks that offer high dividend yields but pay out only a small proportion of their earnings tends to outperform other strategies in the long term, according to Credit Suisse analysts.
‘High-yield, low-payout essentially means you are buying yield stocks that are trading at a low price-earnings ratio’, or value stocks, its analysts said in a report on Asia-Pacific equities last week.
Such an investment strategy tends to outperform others in rising markets except in the bubble phase, they said. Also, ‘a low payout implies that these companies are retaining cash for growth which also helps long-term performance’.
They analysed stocks in Asia-Pacific markets for the best-performing strategies during the period January 2009 to June 2010.
In Australia, China, India, Indonesia, Japan, Malaysia, South Korea and Taiwan, buying high-yield, low-payout stocks would have earned investors the highest returns over that period compared with other strategies, they found.
The other strategies tested included buying stocks that paid no dividends; stocks that had high dividend yields; stocks with both high dividend yields and high payout ratios; stocks with low dividend yields and low payout ratios; and stocks that had low dividend yields but high payout ratios.
The performances of the various strategies were also compared with that of buying an overall portfolio of stocks for each market.
‘For most markets, the high-yield low-payout strategy was the best performing strategy followed by the non-dividend paying stocks for a few markets,’ the analysts said.
Stocks that pay no dividends are also called growth stocks. Instead of seeking dividends, buyers bet that the share price will increase substantially so they get large capital gain when they sell the stocks.
In Singapore, stocks that paid no dividends showed the biggest returns over the period examined. But investing in high-yield, low-payout stocks was still the best-performing strategy over a longer period of 15 years examined in an earlier study, the Credit Suisse analysts said.
Among those they consider to be high-yield, low-payout Singapore stocks are telco M1, rig builders Keppel Corp and Sembcorp Marine, transport group ComfortDelGro Corp, real estate developer Allgreen Properties and conglomerate Sembcorp Industries.
These stocks have dividend yields of up to 6.3 per cent a year at current prices but pay out as little as one-third of their profits as dividends. All are rated ‘outperform’ by Credit Suisse.
Other stocks, such as Fortune Real Estate Investment Trust and property firms MCL Land and United Engineers, have dividend yields of over 3 per cent a year but pay out less than a quarter of their earnings as dividends.
Yield Stocks – BT
High-yield, low-payout stocks stand out
Strategy tends to outperform others in most rising markets
INVESTING in stocks that offer high dividend yields but pay out only a small proportion of their earnings tends to outperform other strategies in the long term, according to Credit Suisse analysts.
‘High-yield, low-payout essentially means you are buying yield stocks that are trading at a low price-earnings ratio’, or value stocks, its analysts said in a report on Asia-Pacific equities last week.
Such an investment strategy tends to outperform others in rising markets except in the bubble phase, they said. Also, ‘a low payout implies that these companies are retaining cash for growth which also helps long-term performance’.
They analysed stocks in Asia-Pacific markets for the best-performing strategies during the period January 2009 to June 2010.
In Australia, China, India, Indonesia, Japan, Malaysia, South Korea and Taiwan, buying high-yield, low-payout stocks would have earned investors the highest returns over that period compared with other strategies, they found.
The other strategies tested included buying stocks that paid no dividends; stocks that had high dividend yields; stocks with both high dividend yields and high payout ratios; stocks with low dividend yields and low payout ratios; and stocks that had low dividend yields but high payout ratios.
The performances of the various strategies were also compared with that of buying an overall portfolio of stocks for each market.
‘For most markets, the high-yield low-payout strategy was the best performing strategy followed by the non-dividend paying stocks for a few markets,’ the analysts said.
Stocks that pay no dividends are also called growth stocks. Instead of seeking dividends, buyers bet that the share price will increase substantially so they get large capital gain when they sell the stocks.
In Singapore, stocks that paid no dividends showed the biggest returns over the period examined. But investing in high-yield, low-payout stocks was still the best-performing strategy over a longer period of 15 years examined in an earlier study, the Credit Suisse analysts said.
Among those they consider to be high-yield, low-payout Singapore stocks are telco M1, rig builders Keppel Corp and Sembcorp Marine, transport group ComfortDelGro Corp, real estate developer Allgreen Properties and conglomerate Sembcorp Industries.
These stocks have dividend yields of up to 6.3 per cent a year at current prices but pay out as little as one-third of their profits as dividends. All are rated ‘outperform’ by Credit Suisse.
Other stocks, such as Fortune Real Estate Investment Trust and property firms MCL Land and United Engineers, have dividend yields of over 3 per cent a year but pay out less than a quarter of their earnings as dividends.
Thomson Medical – BT
Thomson Med sanguine about FY2011 results
MOH suspension of fertility unit to have no material impact
THOMSON Medical Centre yesterday said that the suspension of its fertility treatment unit would not have a material impact on current year financial results, as it does not expect any significant transfer of existing patients to other assisted reproduction centres.
In a statement to the Singapore Exchange, Thomson Medical said that the suspended unit, Thomson Fertility Centre (TFC), accounted for 4.4 per cent of the group’s revenue in the last financial year. For the year ended Aug 31, it accounted for 5.9 per cent of Thomson Medical’s after-tax profit.
The group was in the limelight last week, first for being the subject of a $513 million buyout by former ‘remisier king’ Peter Lim and then for a botched invitro-fertilisation (IVF) treatment at its wholly owned subsidiary.
A wrong sperm was used in the procedure, which resulted in the baby having his mother’s genetic make-up but not his father’s. Following lapses identified during an audit, the Ministry of Health has directed the centre to stop initiating fresh cycles of assisted reproduction treatment.
Under the directive, patients who have started on their treatment cycles can either opt to continue with TFC or transfer to another AR centre.
‘So far, those we have spoken to have indicated that they will continue their treatment in TFC,’ Thomson Medical said.
The group added that it would apply for the suspension to be lifted as soon as possible. It intends to carry out the additional processes recommended by the authorities and will be inviting MOH to review the implementation.
The group posted a full-year net profit of $15.88 million, 24.2 per cent higher than a year ago. For the 12 months ended August, revenue rose 21.2 per cent to $81.67 million.
Despite news of the IVF incident, Thomson Medical’s share price has held steady at $1.75, as Mr Lim snapped up more shares from the open market. Since announcing his general offer, at $1.75 per share or a 62 per cent premium, Mr Lim has amassed 57.61 per cent of the private healthcare services provider. The counter closed unchanged yesterday at $1.75 with 2.56 million shares changing hands.
Thomson Medical – BT
Thomson Med sanguine about FY2011 results
MOH suspension of fertility unit to have no material impact
THOMSON Medical Centre yesterday said that the suspension of its fertility treatment unit would not have a material impact on current year financial results, as it does not expect any significant transfer of existing patients to other assisted reproduction centres.
In a statement to the Singapore Exchange, Thomson Medical said that the suspended unit, Thomson Fertility Centre (TFC), accounted for 4.4 per cent of the group’s revenue in the last financial year. For the year ended Aug 31, it accounted for 5.9 per cent of Thomson Medical’s after-tax profit.
The group was in the limelight last week, first for being the subject of a $513 million buyout by former ‘remisier king’ Peter Lim and then for a botched invitro-fertilisation (IVF) treatment at its wholly owned subsidiary.
A wrong sperm was used in the procedure, which resulted in the baby having his mother’s genetic make-up but not his father’s. Following lapses identified during an audit, the Ministry of Health has directed the centre to stop initiating fresh cycles of assisted reproduction treatment.
Under the directive, patients who have started on their treatment cycles can either opt to continue with TFC or transfer to another AR centre.
‘So far, those we have spoken to have indicated that they will continue their treatment in TFC,’ Thomson Medical said.
The group added that it would apply for the suspension to be lifted as soon as possible. It intends to carry out the additional processes recommended by the authorities and will be inviting MOH to review the implementation.
The group posted a full-year net profit of $15.88 million, 24.2 per cent higher than a year ago. For the 12 months ended August, revenue rose 21.2 per cent to $81.67 million.
Despite news of the IVF incident, Thomson Medical’s share price has held steady at $1.75, as Mr Lim snapped up more shares from the open market. Since announcing his general offer, at $1.75 per share or a 62 per cent premium, Mr Lim has amassed 57.61 per cent of the private healthcare services provider. The counter closed unchanged yesterday at $1.75 with 2.56 million shares changing hands.