ComfortDelgro – BT
ComfortDelGro makes play for SwanTaxis
A$38.8m cash takeover bid launched for Aussie firm, which has 9% share of the Perth metropolitan market
COMFORTDELGRO Corporation has launched an A$38.8 million (S$46.5 million) cash takeover bid for Australia’s Swan Taxis, which has a 91 per cent share of the Perth metropolitan market.
The offer for all the shares and options in Swan Taxis is conditional on ComfortDelGro obtaining at least 90 per cent of the company’s stock.
There are 225,545 Swan Taxis shares and options currently outstanding.
The offer price is about 1.4 times Swan Taxis’ book value and 6.6 times its Ebitda (earnings before interest, tax, depreciation and amortisation).
‘Swan is the leading taxi operator in Western Australia with an advanced despatch system and a strong customer base,’ said Kua Hong Pak, ComfortDelGro’s managing director and group chief executive.
‘We are excited about the prospects this proposed acquisition offers us – geographic expansion and extension of another of our core businesses in Australia.’
The acquisition, which will be funded internally, is not expected to have a material impact on the group’s net tangible assets per share or earnings per share for its financial year ending Dec 31, 2010.
ComfortDelGro said yesterday it has lodged a bidder’s statement with the Australian Securities & Investments Commission for Swan Taxis’ shares and options.
An offer letter will be sent to Swan Taxis shareholders within two weeks, and they will have seven weeks to decide.
If and when a 90 per cent acceptance rate is achieved, ComfortDelGro will compulsorily acquire all shares.
Swan Taxis, which has a fleet of 1,667 taxis, is an unlisted public company.
For the 12 months ended June 30, 2009, it reported revenue of A$13.3 million and a profit before tax of A$4.6 million.
ComfortDelGro is already one of the largest private bus operators in the Australian states of New South Wales and Victoria.
Australia accounts for the lion’s share of ComfortDelGro’s overseas investment, at $357 million to date.
Overseas ventures currently account for 42.9 per cent of ComfortDelGro’s group revenue – a figure it plans to grow to 70 per cent over the medium term.
The group’s counter closed one cent higher at $1.51 in trading yesterday.
M1 – DBSV
Focused on market share gains
• Net profit of S$40.8m (+10% yoy) and interim dividend of 6.3 Scents in line. Market share gains for the fifth consecutive quarter.
• FY10F revised up 4%, no change to FY11F, adjusting for fair value accounting (FVA)
• FY10F capex guidance lowered to S$100m from S$100m-120m. Due to FVA, we switch from PER to DCF based (WACC 8.4%, terminal growth 0%) TP of S$2.30.
Fifth consecutive quarter of mobile market share gain. M1’s overall mobile market share continued to inch up and reached 26.2% in 2Q10 (26% in 1Q10) from the low of 25.2% in 1Q10. Post-paid mobile share has been stable at 26.5% while pre-paid share increased to 26% from 23.7% in 1Q10. We estimate operators take longer time (5-6 months compared to 3-4 months earlier) to breakeven on the acquisition costs of new iPhone subscribers. However, Net Present Value (NPV) over 2-year contract period is higher for iPhone subscribers. With 7% yield plus capital management potential intact, we believe M1 is an attractive investment.
Fair value accounting for handsets, supports stable dividends. Under FVA, M1 expenses the handset costs during the period they are incurred. However, a part of the future service revenue over the contract period, attributable directly to the handset is recognized upfront as handset revenue. While FVA results in timing mismatch between earnings and operating cash flow, it does indicate the real profitability of subscribers on a quarterly basis. M1 is using FVA so as to prevent large swings in its earnings, which has implications for its dividends. With higher FY10F earnings, 80% dividend payout ratio should lead to higher dividends, as free cash flow should still exceed 80% of net profit. We expect FY11F earnings to still grow in FY11F, although not as much as without FVA policy.
M1 – CIMB
Keeping our faith in capital management
• In line; upgrade to Outperform. 1H10 core profit met our forecast and consensus, forming 49% and 51% of the respective FY10 numbers. An interim dividend of 6.3 cts was declared for 2Q10, representing a payout of 71%, in line with our forecast. 2Q10 revenue fell qoq following a strong 1Q led by iPhone sales, but margins improved as handset subsidies abated with lower handset volume. We leave our FY10-FY12 forecasts intact but cut our special DPS expectations from 23.5 cts/share to 10 cts/share due to higher working capital requirements from an increased stock of higher-value smartphones. We assume capex will be funded by borrowings, freeing up cashflows for special dividends. This also lowers our DCFbased target price (WACC: 8.5%) to S$2.20 from S$2.26. Despite this, we upgrade M1 from Neutral to Outperform given our strategists’ more cautious view on the market, M1’s defensive qualities and likely capital reduction/special dividend of 10 cts/share, and a beneficiary of soaring inbound visitors.
• Drop in revenue… 1H10 topline declined 10% qoq primarily because of lower handset sales as take-up of iPhones slowed owing to a lack of stock and as consumers waited for iPhone 4. Service revenue was flat as lower IDD revenue (from lower wholesale revenue) and prepaid revenue was offset by stronger postpaid revenue from a larger subscriber base and higher usage. Postpaid net adds were strong owing to good take-up of iPhones in Apr-May and participation in IT shows while prepaid net adds rose as more promotions were rolled out.
• …and costs. EBITDA margins jumped 4.7% pts qoq as handset costs fell (-36% qoq) on lower volumes sold. Other operating costs were stable qoq as lower leased line costs (-12.2% qoq) from more migration to its own backhaul transmission network were offset by higher traffic costs and wholesale costs for fixed services.
• Capital management ruled out for now. M1 also declined to provide a timeline for this. Despite acknowledging its capacity to return more cash and noting the revision in the government’s GDP growth forecast to 13-15% from 7-9% for 2010, M1 is still cautious over the economy. It would, however, re-visit this issue next quarter. We still believe it would pay a special dividend as its net debt/annualised EBITDA of 0.9x is below its limit of 1.5x and the economy continues to recover.
M1 – BT
M1 lifts Q2 net profit 10% to $40.8m
Telco’s customer base, operating revenue up; declares higher dividend
THE second-quarter corporate earnings season got off to a good start yesterday, with M1 reporting that its Q2 net profit rose 10 per cent to $40.8 million from a year earlier, as operating revenue improved and its customer base grew.
The telco also raised its dividend slightly, signalling confidence in the business outlook for the rest of the year – a welcome start to the current Singapore corporate earnings season.
M1’s board declared an interim cash dividend of 6.3 cents a share, to be paid in August, up from 6.2 cents a year back.
Its earnings per share rose to 4.5 cents, from 4.1 cents a year earlier.
Compared with Q1, net profit was 3.7 per cent higher, mainly due to lower operating expenses, M1 said after trading ended yesterday. For the first six months of the year, net profit increased to $80.1 million, up 1.5 per cent from the same period last year – or 9.2 per cent if a tax credit adjustment that boosted earnings in the earlier period was excluded.
M1 chief executive Karen Kooi repeated the company’s guidance in April that it expects net profit for the full year to be higher than last year’s.
‘Based on the current outlook, net profit after tax for the year 2010 is likely to improve, compared to 2009,’ she said in a statement yesterday. M1’s share price ended 0.5 per cent higher at $2.16, before its earnings report.
M1 added 180,000 mobile-phone customers over the year, raising its user base 10.8 per cent to 1.849 million at end-June. Its market share at end-May – based on the latest industry statistics – was 26.2 per cent, up from 25.6 per cent at end-June last year.
Mobile services, which account for more than half of the telco’s operating revenue, rose 2.2 per cent over the year to $144.7 million in Q2. Sales to post-paid and pre-paid subscribers grew as M1 acquired more customers, but average revenue per user fell.
Handset sales rose sharply to $40.7 million in the three months to end-June, from $15.6 million a year earlier. Overall, operating revenue for the quarter rose 17.1 per cent year on year to $223.1 million.
M1 is preparing to take full advantage of the commercial opportunities presented by the new nationwide all-fibre network scheduled for launch later this year that will ‘change the current competitive landscape for fixed services’, Ms Kooi said.
Fixed-line services make up just a fraction of M1’s revenue at present – $6.1 million of the company’s $223.1 million in operating revenue in Q2 – but that contribution is likely to rise with the commercial launch of new fibre-optic broadband highway.
This will allow M1 – the smallest of Singapore’s three telcos – to offer fixed-line broadband services to compete with rivals SingTel and StarHub.
SingTel – DBSV
Key takeaways from Bharti’s conference call on Zain
• Bharti highlighted warm responses from African governments and regulators. This may signal potential for interconnection rate cut in Africa.
• SingTel’s FY11F/12F/13F earnings would be raised by 1%/2%/3% if Bharti can improve Zain’s margins.
• SingTel is our top sector pick, for strong Optus & renewed Bharti, not reflected in its 12.3x PER (Hist avg. 13.4x) compared to STI FY10F PER of 13.9x.
Takeaways on regulations and strategy in Africa. Bharti acknowledged that interconnection rates were too high in Africa and could be lowered substantially based on interconnection costs incurred by most efficient operators. Bharti believes that new licenses are unlikely to be issued due to lack of cellular spectrum in Africa. Management plans to kick-start infrastructure sharing to lower the capex while expanding coverage in rural areas. Bharti sees huge opportunity in lower minutes of usage of 60 min/subscriber (Indian average is 450 minutes). Management also clarified that annual interest cost on Zain’s related debt is around US$200m, which can be serviced from Zain’s free cash flow. Bharti guided for annual capex of about US$800m, slightly lower than our US$1bn expectations.
Key challenge is to improve EBITDA margins in our view. Bharti intends to grow Zain’s subscriber base to 100m, revenue to US$5bn and EBITDA to US$2bn by FY13F. This translates to subscriber CAGR of 33%, revenue CAGR of 11% and EBITDA CAGR of 18% over FY10-FY13F. We believe 11% revenue CAGR is comfortably achievable. However, the key challenge would be to improve EBITDA margins, especially with declining ARPU as Bharti penetrates into the rural regions. We have assumed EBITDA CAGR of 11% for Zain in our model. If Zain can achieve 18% EBITDA CAGR, it would raise SingTel’s FY11F/12F/13F earnings by 1%/2%/3%, adding 10 Scents to our TP for SingTel.