StarHub – DB
2Q10 preview: Focus on pay TV outlook post-EPL
STH reports 2Q10 results on Thurs 5 Aug 2010.
We forecast total 2Q10 revenues at S$547m, down 2% QoQ as declines in equipment, cable TV and broadband revenues are partially offset by growth in mobile and fixed. Service revenues are projected to be approx S$522m (down QoQ but up 2% YoY). Margins should recover on 1Q10 but will still be down YoY on higher subsidies and we therefore expect STH’s 2Q10 EBITDA margin to be around 26.5% on all revenues and 27.8% on service revenues (versus 2Q09’s 30.3% and 31.4% respectively). Total EBITDA is projected to reach S$145m (down 10% YoY) with NPAT down 17% YoY to S$65m.
Key focus on pay TV performance and cash-flows
We expect STH’s financial performance will improve QoQ throughout 2010e after the weak 1Q10. This improvement is despite our expectations that both cable TV and broadband revenues will be impacted by the English Premier League (EPL) loss. Specifically, we expect pay TV ARPU declines while we also project a 40k net pay TV subscriber loss by end-2010. As a result, we forecast 2010e pay TV and broadband revenues to be down 10% and 8% YoY respectively. So clearly a key focus at the 2Q10 results will be on how STH’s pay TV business has performed over recent months, especially in terms of subscriber churn – if not as severe as we expect then there may be upside risk to our estimates. Elsewhere, we will be watching free cash-flow trends given 1Q10’s good cash-flow generation on more active working capital management.
STH is up 9% year-to-date (STI up 1.7% YTD) and it remains our preferred Singapore telco especially as we continue to believe that the 20c/share annual dividend per share and the associated 8.5% dividend yield is long-term sustainable. Our S$2.62 target price implies a target 7.6% yield and we maintain Buy particularly as we expect 2Q10 results to show QoQ improvement.
StarHub – DB
2Q10 preview: Focus on pay TV outlook post-EPL
STH reports 2Q10 results on Thurs 5 Aug 2010.
We forecast total 2Q10 revenues at S$547m, down 2% QoQ as declines in equipment, cable TV and broadband revenues are partially offset by growth in mobile and fixed. Service revenues are projected to be approx S$522m (down QoQ but up 2% YoY). Margins should recover on 1Q10 but will still be down YoY on higher subsidies and we therefore expect STH’s 2Q10 EBITDA margin to be around 26.5% on all revenues and 27.8% on service revenues (versus 2Q09’s 30.3% and 31.4% respectively). Total EBITDA is projected to reach S$145m (down 10% YoY) with NPAT down 17% YoY to S$65m.
Key focus on pay TV performance and cash-flows
We expect STH’s financial performance will improve QoQ throughout 2010e after the weak 1Q10. This improvement is despite our expectations that both cable TV and broadband revenues will be impacted by the English Premier League (EPL) loss. Specifically, we expect pay TV ARPU declines while we also project a 40k net pay TV subscriber loss by end-2010. As a result, we forecast 2010e pay TV and broadband revenues to be down 10% and 8% YoY respectively. So clearly a key focus at the 2Q10 results will be on how STH’s pay TV business has performed over recent months, especially in terms of subscriber churn – if not as severe as we expect then there may be upside risk to our estimates. Elsewhere, we will be watching free cash-flow trends given 1Q10’s good cash-flow generation on more active working capital management.
STH is up 9% year-to-date (STI up 1.7% YTD) and it remains our preferred Singapore telco especially as we continue to believe that the 20c/share annual dividend per share and the associated 8.5% dividend yield is long-term sustainable. Our S$2.62 target price implies a target 7.6% yield and we maintain Buy particularly as we expect 2Q10 results to show QoQ improvement.
M1 – AmFraser
Interims in line with expectations
• M1’s interim results were in line with our expectations. We maintain our forecasts, as well as HOLD rating on fair value of $2.29.
• Total mobile subscribers grew a healthy 11% YoY to 1.85 million. Prepaid net adds at 11,000/month were stronger in 2QFY10, while that for postpaid maintained at 7,000/month. Prepaid made up 48% of total subscriber base.
• However, mobile service revenues grew a modest 2% YoY to $288.1 mil in 1HFY10 as ARPUs declined in 2Q. Prepaid fell 6% oY to $14.50, while that for postpaid fell 2% YoY to
$59.70.
• Mobile data continues as a key revenue driver, increasing its contribution to 17.8% of mobile service revenues in 2QFY10, from 11.5% in FY09. M1 continues to upgrade its network to achieve 42 Mbps.
• M1’s maiden launch of iPhones in December 2009 led handset sales to surge more-thantwofold in 1HFY10 to $108mil.
• M1’s new fixed line business which consolidated the acquisition of Qala Singapore (renamed M1 Connect) from 4QFY09, maintained business momentum but still accounts for a mere 3% of total service revenues of $364mil in 1HFY10.
• The launch of the new fibre Next Generation National Broadband Network is now delayed to September/October 2010.
• Total operating expense jumped 31% to $373mil in 1HFY10, but this was largely due to revenue-related costs such as handset subsidies.
• On balance, pretax rose a healthy 9% YoY to $97mil in 1HFY10, but net showed a mere 1% rise to $80mil, masked by the effect of a tax credit in 1QFY09.
• Management maintains a cautious outlook amidst a depressed global macro-backdrop, but guides for bottomline growth for FY10. We maintain our 4% YoY net profit growth to $157mil.
• Dividend yield at 6% – 7% p.a. is now less compelling, after share price appreciation of 88% over the past 20 months since its low.
ComfortDelgro – Kim Eng
Taking a Swan dive Down Under
What’s New
• ComfortDelgro is bidding to enter the Australian taxi market via an A$38.8m acquisition of Swan Taxis, the largest taxi operator in Perth, Western Australia. Priced at 13x earnings vs ComfortDelgro’s 14‐15x, this sounds like a good move in our view as it will be buying into a profitable company with a long operating history. It is also a natural extension of its bus businesses in Sydney and Melbourne. Maintain BUY with target price at $1.87 pending the completion of the deal.
Our View
• Swan Taxis is highly profitable with an EBIT margin that exceeds 30%, compared to ComfortDelgro’s 11‐12%. It is also practically zero debt and is in a strong net cash position. ComfortDelgro’s offer values Swan at earnings‐accretive levels.
• Growth prospects for Swan are excellent, in our view, as the population of Perth is expected to hit 2.2m by 2025, from 1.7m now. In fact, Perth’s population growth of 3.2% last year, driven by foreign immigration and interstate migration, made it the fastest‐growing city in Australia. The demand for taxi services is thus expected to
intensify.
• If the acquisition succeeds, we expect ComfortDelgro’s FY11F‐12F earnings would improve by 1.5‐2% and our fair value would increase from $1.87 currently to $1.90. The deal is likely to take three months to complete, subject to approval by the Australian Competition and Consumer Commission. Pending its completion, we are maintaining our forecasts for now.
Action & Recommendation
Pending the completion of the acquisition, we maintain our forecasts and target price of $1.87, based on 17x FY10 forecast. Maintain BUY.
SingPost – UBS
Strong performance could continue
• Beneficiary of the strong economy
We expect Singapore Post’s (SingPost) revenue in coming quarters to be strong given the robust Singapore economy, which our economist estimates could grow 14.7% this year. The share price is up 11% YTD and has outperformed the local market by 9%. We think it could continue to perform as earnings could surprise on the upside. We reiterate our Buy rating and raise our price target from S$1.15 to S$1.27.
• Mail revenue to benefit from domestic strength
Historically SingPost’s revenue has correlated strongly with GDP growth, albeit with a three to six month lag. A strong growth picture is emerging from various data points including advertising revenue, tourist arrivals and credit growth, and we believe SingPost’s business should be no exception. We raise our FY11/12/13 EPS estimates from S$0.08/0.07/0.08 to S$0.09/0.09/0.09
• 6.2% yield
In addition to trading at an attractive valuation of 13x FY11E earnings, the stock has an attractive yield of 6.2%. It has historically paid out 80% of its earnings and we believe this could continue as its balance sheet remains healthy.
• Valuation: raise price target from S$1.15 to S$1.27
We derive our price target of S$1.27 from a DCF methodology, assuming WACC of 7.38% and 3% terminal growth. We explicitly forecast long-term valuation drivers using UBS’s VCAM tool