SingPost – BT
SingPost Q1 profit inches up 3.2% to $40.7m
SINGPOST’S net profit grew 3.2 per cent to $40.7 million for the first quarter ended June 30.
Earnings per share were 2.11 cents, up from 2.045 cents a year ago. Revenue hit $138.2 million, a 13.5 per cent increase from the year before.
Expenses increased 19 per cent to $103.1 million, due in part to the consolidation of SingPost’s regional outfit Quantium Solutions, higher labour costs and reduced benefits from the government’s Jobs Credit Scheme.
Revenue for the mail and logistics segments showed better performances.
Logistics revenue surged 34.4 per cent year on year to $46.3 million, primarily due to inclusion of Quantium Solutions for the full quarter, versus two months in Q1 2009.
Mail revenue rose 11.4 per cent to $95.7 million, on higher domestic and international traffic.
SingPost deputy CEO Ng Hin Lee said: ‘We will continue to push for regional growth through Quantium Solutions, especially in the area of e-commerce logistics, against the backdrop of rapid Internet growth in north Asia. Concurrently, we are expanding our in-country distribution networks in the region, especially in the India market.’
SingPost has declared an interim quarterly dividend of 1.25 cents per ordinary share, to be paid on Aug 31.
While SingPost is constantly pressured by e-substitution and other competitors, Mr Ng is optimistic about future earnings amid the recovering economy.
SingPost aims to remain globally relevant, he said. ‘We will focus our efforts on diversification and growth. Our objective is to build a more balanced revenue and earnings portfolio by growing non-mail contributions and driving regional growth.’
SingPost shares closed flat at $1.13 yesterday, after the release of its Q1 results.
TELCOs – OCBC
All three telcos to launch iPhone 4G
Simultaneous iPhone 4G launch. All three telcos – M1, SingTel and StarHub – will simultaneously launch the new Apple iPhone 4G on 30 Jul. While this was a departure from the previous iPhone 3GS launch, where SingTel had the exclusive march on the other two telcos for almost four months, we are not surprised by the latest move. We note that Apple has been moving towards non-exclusive deals for its iPhones
across the globe; we suspect the stronger-than-expected demand arising from M1’s and StarHub’s mid-Dec 2009 launch of the iPhone 3GS may have tilted the scale towards a nonexclusive launch. In addition, Apple may also be looking to strive off growing competition from the Android-based smartphones.
Unlikely to see extreme pricing competition. Meanwhile, all the three telcos have started to accept pre-orders for the iPhone 4G online and are pricing the 16GB version between S$0 and S$480 and the 32GB one between S$0 and S$630 depending on the service plans taken up. We note that the pricing was just a little cheaper than the previous model. And being slightly late to the game (StarHub and M1 only started offering the iPhone 3GS in mid-Dec 2009), the demand from their existing iPhone subscribers may not be as strong due to the 2-year lock-in period. We suspect the demand may also be slightly dampened by the 4G’s much-publicized “reception bug”. As such, we note that the promotions/subsidies for the iPhone 4G are not that aggressive. And as expected, the telcos are continuing with the existing iPhone price plans.
Data usage likely to grow. Separately, Apple launched its widely popular iPad tablet in Singapore last Friday to overwhelming response as well. However, due to the closeness of the launches, we suspect that this may steal some of the iPhone 4G’s thunder. Nevertheless, the growing popularity of these smart devices will trigger further growth in the mobile data segment. Already we note that all the three telcos have introduced new standalone mobile data packages for the iPad, but without the margin-sapping subsidies for the device.
Maintain OVERWEIGHT. We believe that the iPhone 4G launch should be quite positive as it is unlikely to result in further margin compression. The impending roll-out of the NBN (new fibre-to-home network) will provide further catalyst for all the three telcos in the latter part of 2010. As we continue to like their defensive earnings and attractive dividend yields, we remain OVERWEIGHT on the sector.
StarHub – DBSV
Keep an eye on free cash flow
• 2Q10F results to be released on 5th August; net profit should be in line while free cash flow may disappoint.
• Market likely to focus on the non-mobile business prospects (40% of total EBITDA) in 2H10F.
• If StarHub continues with 20 Scents DPS, equity could become negative in 2012F.
• Maintain FV with DCF based revised TP of S$2.20.
We expect 2Q10F earnings of S$65m. Compared to 1Q10 earnings of S$43m, 2Q10 should benefit from (i) S$10m higher earnings in the mobile business as handset subsidies decline; and (ii) an absence of S$12m staff bonus costs in 1Q10. Going forward, we project 3Q/4Q earnings of S$77m/S$75m respectively.
2Q10F free cash flow (FCF) may be less than S$60m. We expect higher capex in 2Q10, as 1Q10 capex of S$49m was lower than quarterly run-rate of S$75m. Plus working capital could be negative in 2Q10 as payables were high in 1Q10. A back-end loaded capex may lead to declining FCF each subsequent quarter. We project FY10F FCF of S$251m compared to dividend commitments of S$343m. We could be wrong if FY10F capex is lower than our S$300m projection (14% of service rev). However, as StarHub has S$100m capex commitment for NBN over FY10F-12F, a lower FY10F capex implies higher capex in FY11F. If StarHub continues with 20 Scents DPS beyond 2010F, group equity could become negative in 2012F.
Non-mobile business would be the key focus. Non-mobile business would feel the heat from NBN and pay TV subscriber battles in 2H10F. The key question is whether gains in the corporate business can offset the loss in the consumer broadband business. We project non-mobile EBITDA to decline by 5% in both FY10F/11F. We cut FY10F earnings by 5% due to smartphone subsidies but raise FY11F earnings by 6% to reflect the revenue contribution of smartphone subscribers. As investors increasingly focus on FCF, we switch to DCF based (WACC 8.4%, terminal growth 0%) valuation, with TP of S$2.20
M1 – CIMB
Battle for M1? We think not
Shareholding tussles unlikely
Maintain Outperform. The battle for control over Singapore-listed Parkway has led us to question if M1 could equally be a takeover target, given its fragmented shareholdings. However, we believe the probability of this happening is very slim as: 1) M1 operates in a small and mature market which is unlikely to attract substantial takeover interest, unlike Parkway; and 2) no new major shareholder has emerged in M1’s case. We maintain our OUTPERFORM rating with an unchanged DCF-based (8.5% WACC) target price of S$2.20. M1 remains our top Singapore telco pick, given its potential for capital management backed by a strengthening balance sheet, benefits from NGNBN and the positive impact of soaring tourist arrivals on its inbound roaming services.
The details
The battle for control at Parkway Holdings between Khazanah and Fortis has prompted us to sift through our coverage in search of telcos with fragmented shareholding structures. M1 comes to mind with its key shareholders being 29.62% Axiata (though Sunshare), 19.96% Keppel Telecoms, and 13.89% Singapore Press Holdings. SPH’s stake in M1 is seen as a non-core investment as its bread-and-butter is print media and property. The combination of M1’s fragmented shareholdings and SPH’s treatment of its stake in M1 could lead to speculation that Axiata could mount a full takeover of M1.
Low likelihood. We believe the probability of a battle for control or takeover of M1 by Axiata is very slim:
• Firstly, M1 operates only in Singapore, a small market and mature market, and is unlikely to attract the interest of Axiata or new strategic investors with interest in substantially larger emerging market assets. On the other hand, Parkway is seen as a growth company with a network of 16 hospitals in Asia, including Singapore, Malaysia, Brunei, India and China.
• Secondly, a new major shareholder has not emerged, unlike the case of Parkway. Should Axiata decide to buy out the other major shareholders in M1, it would breach the 30% trigger for a general offer. Assuming it acquires M1 at a 20% premium to M1’s share price, and fund 60% of this with debt, Axiata would have to cough up RM1.5bn, which should be easily funded by its balance sheet. We project its FY10 net debt/EBITDA at 1.1x, up from our base projection of 0.8x. However, the market is likely to frown at such a transaction as M1 is a slow-growth telco operating in a small market, and the funds should be returned as dividends.
Valuation and recommendation
Maintain OUTPERFORM on M1, with an unchanged DCF-based target price of S$2.20. M1 remains our top Singapore telco pick, given its potential for capital management backed by a strengthening balance sheet.
STEng – BT
ST Engg unit in JV to set up aircraft facility
ST Aerospace and its partner will invest US$99m in China
SINGAPORE Technologies Engineering (ST Engg) said yesterday its ST Aerospace arm will partner Guangdong Airport Management Corporation (GAMC) to set up a commercial aircraft heavy maintenance facility in Guangzhou, China.
They will invest US$99 million in a joint venture company called ST Aerospace (Guangzhou) Aviation Services, which will be operated and managed by ST Aerospace.
ST Aerospace will own a 49 per cent stake, and GAMC the other 51 per cent.
Located at Guangzhou Baiyun International Airport, the facility will have two hangars – each able to accommodate two widebody aircraft simultaneously. Construction is expected to take about two years, after which the facility will provide maintenance and modification services for Boeing and Airbus aircraft.
ST Engineering said the JV company is expected to start operating two years after incorporation. The venture, which is pending approval by the Chinese government, has already been endorsed by the Civil Aviation Administration of China.
ST Aerospace president Chang Cheow Teck said: ‘Guangzhou is a major aviation hub in Asia. We hope to build a strong capability to provide high-quality and reliable services for our global customers who operate in and fly into China.’
The JV brings the number of ST Aerospace’s China establishments to four. Its three other JVs in China are an aircraft maintenance, repair and overhaul (MRO) company in Shanghai; an engine MRO company in Xiamen and an import-export facility in Guangzhou.
ST Aerospace’s most recent deals include a US$105 million contract with Shanghai-based Spring Airlines in April and a US$750 million engine maintenance contract with India’s Jet Airways at end-March.
ST Engineering said the latest JV is not expected to have a material impact on its consolidated net tangible assets per share and earnings per share this financial year.
ST Engineering’s share price fell two cents yesterday, closing at $3.22.