SPH – Lim and Tan
• Market appears to be anticipating a good set of numbers from SPH, including a higher special dividend. (SPH will release results for its final quarter / full year ended Aug ’10 on Tuesday Oct 12th. For ye Aug ’09, while maintaining normal final dividend at 9 cents, SPH had cut the special by 1 cent to 9 cents.)
• Reported net profit for 9 months ended May ’10 came to $422.59 mln, vs $286.78 mln for the same period a year ago. Excluding exceptionals, the respective numbers would be $437.24 mln vs
$341.60 mln.
• The stock ran up 4 cents to $4.25on Thursday, the highest since Aug ’08, thereby breaching, albeit modestly, the $4.20 support-turned-resistance level. (SPH had in Aug ’08, broken-down from the $4.20-4.72 range that had held from Jan ’07 to July ’08.)
• Fact is, print advertising has been picking up nicely along with the strong economy.
• On Saturday Oct 2nd for instance, BMW took up 2 full-page and 7 half-page advertisements as it launched its new 7 series, extolling the 7 principles of leadership.
• And BMW is not alone, as other European marques Mercedes Benz, Audi have also been aggressively pushing their latest.
• We maintain BUY.
SPH – Lim and Tan
• Market appears to be anticipating a good set of numbers from SPH, including a higher special dividend. (SPH will release results for its final quarter / full year ended Aug ’10 on Tuesday Oct 12th. For ye Aug ’09, while maintaining normal final dividend at 9 cents, SPH had cut the special by 1 cent to 9 cents.)
• Reported net profit for 9 months ended May ’10 came to $422.59 mln, vs $286.78 mln for the same period a year ago. Excluding exceptionals, the respective numbers would be $437.24 mln vs
$341.60 mln.
• The stock ran up 4 cents to $4.25on Thursday, the highest since Aug ’08, thereby breaching, albeit modestly, the $4.20 support-turned-resistance level. (SPH had in Aug ’08, broken-down from the $4.20-4.72 range that had held from Jan ’07 to July ’08.)
• Fact is, print advertising has been picking up nicely along with the strong economy.
• On Saturday Oct 2nd for instance, BMW took up 2 full-page and 7 half-page advertisements as it launched its new 7 series, extolling the 7 principles of leadership.
• And BMW is not alone, as other European marques Mercedes Benz, Audi have also been aggressively pushing their latest.
• We maintain BUY.
ComfortDelgro – CIMB
Multiple avenues of growth
• Maintain Outperform with higher target price of S$1.90 (from S$1.83). Daily ridership for ComfortDelgro’s trains and buses has been rising almost every month since the start of the year. We keep our earnings estimates but raise our DCF-based target price to S$1.90 (WACC 8.0%) after rolling forward to CY12 and re-aligning discount rates with house rates. Trading at 13x CY11 P/E which compares favourably with its 3-year P/E average of 17x and SMRT’s 19x CY11 P/E, we believe currency risks have been priced in and recommend a switch to ComfortDelgro from SMRT. We see catalysts from higher-than-expected dividend payouts.
• Steady domestic outlook; overseas growth potential. Daily ridership for Comfortdelgro’s trains and buses has been rising almost every month since the start of the year. We see potential for ridership and margin expansion for its rail operations. Steady demand for taxis from prospective hirers could also prompt an expansion of its taxi fleet. While ComfortDelgro’s overseas ventures are not as sizeable as its local operations on an individual basis, we are positive on their higher margins and growth opportunities.
• Valuation gap. ComfortDelgro has been trading at an average discount of 18% (forward P/E) to SMRT since the start of 2008. The discount, however, has widened in 2010, arguably stemming from optimism over the new Circle Line. While SMRT’s share price has corrected slightly in the past two months following disappointments with Circle-Line ridership, ComfortDelgro still trades at a 30% discount to SMRT, despite its improving outlook vs. a loss-making Circle Line for SMRT.
ComfortDelgro – CIMB
Multiple avenues of growth
• Maintain Outperform with higher target price of S$1.90 (from S$1.83). Daily ridership for ComfortDelgro’s trains and buses has been rising almost every month since the start of the year. We keep our earnings estimates but raise our DCF-based target price to S$1.90 (WACC 8.0%) after rolling forward to CY12 and re-aligning discount rates with house rates. Trading at 13x CY11 P/E which compares favourably with its 3-year P/E average of 17x and SMRT’s 19x CY11 P/E, we believe currency risks have been priced in and recommend a switch to ComfortDelgro from SMRT. We see catalysts from higher-than-expected dividend payouts.
• Steady domestic outlook; overseas growth potential. Daily ridership for Comfortdelgro’s trains and buses has been rising almost every month since the start of the year. We see potential for ridership and margin expansion for its rail operations. Steady demand for taxis from prospective hirers could also prompt an expansion of its taxi fleet. While ComfortDelgro’s overseas ventures are not as sizeable as its local operations on an individual basis, we are positive on their higher margins and growth opportunities.
• Valuation gap. ComfortDelgro has been trading at an average discount of 18% (forward P/E) to SMRT since the start of 2008. The discount, however, has widened in 2010, arguably stemming from optimism over the new Circle Line. While SMRT’s share price has corrected slightly in the past two months following disappointments with Circle-Line ridership, ComfortDelgro still trades at a 30% discount to SMRT, despite its improving outlook vs. a loss-making Circle Line for SMRT.
STEng – Kim Eng
Currency concerns
What’s New
• With the US dollar at an all‐time low, we reiterate that a weak greenback is negative for ST Engineering. The recovery of the aerospace market has also been relatively muted. However, ST Engineering’s (STE) dividend yield is still attractive at 3.9%. Maintain HOLD and target price of $3.15.
Our View
• The US dollar has slid by 6% against the Singapore dollar over the past three months, weakening to an all‐time low of S$1.317. We note that the majority of STE’s commercial contracts are in US dollars, while a significant cost base is in Singapore dollars. STE had previously guided that every one cent decline in the exchange rate would translate to a S$1.3m slide in earnings.
• Furthermore, we continue to expect the aerospace market to lag in its recovery. Typically, the first positive impact on the MRO industry will come to line maintenance and eventually to heavy maintenance, which ST Aerospace is focused on. While we had anticipated a gradual pickup in this division, ongoing concerns over the US economic recovery and a lack of new orders suggest that this business will take longer to get back up to speed.
• STE’s last reported orderbook at 2Q10 was $11.3b, providing a baseload for the next three years. The company expects to convert about $2.2b in 2H10, which reinforces our expectation of 4.6% revenue growth for the full year. However, we may see a gradual dwindling of its orderbook for the reasons stated above, unless there is a pickup in overall business. Its recent contract to procure trainer aircraft and ground solutions to the Republic of Singapore Air Force for $543m is expected to have thinner margins due to the high equipment content.
Action & Recommendation
Our FY10 earnings forecast stands at $476.1m, which is slightly below consensus but still in line with management’s guidance. We are leaving our forecast unchanged, as the forex decline should be capped at around $10‐15m for now. Our forecast also implies healthy earnings growth of 7% and a dividend yield of 3.9%. STE’s stock price has held steady over the past few months, but at 21x FY10F earnings, we believe the stock is fully valued. Maintain HOLD.