ComfortDelgro – BT
ComfortDelGro’s Q1 profit up 3.4%
Bus business led growth, accounting for over 60% of rise in group revenue
GROWTH in ComfortDelGro’s key businesses boosted revenue by 7.0 per cent to $766.9 million for the first quarter ended March 31, 2010, and this helped net profit to inch up 3.4 per cent to $54.3 million. The results translated to earnings per share of 2.6 cents, up from 2.52 cents a year earlier. The world’s second largest land transport group said the bus business led growth by accounting for over 60 per cent of the increase in group revenue. And Q1 revenue from overseas operations now accounts for 42.9 per cent of total group revenue, up from 40.3 per cent previously.
In line with the revenue growth, operating profit grew by 11.2 per cent to $90.6 million. But taxation expense jumped 43.7 per cent to $17.1 million for the quarter due to higher taxable profits and a writeback of deferred taxation of $5.2 million in Q1 2009.
ComfortDelGro managing director and group CEO Kua Hong Pak said: ‘We have continued to grow both our top line and bottom line but we are mindful that the global economic recovery remains fragile and there are significant challenges ahead.’
First quarter revenue from the bus business climbed 8.8 per cent to $379.3 million on growth in the Australian business and the positive translation effect of the stronger Australian dollar. But revenue from the China business slipped 2.8 per cent to $14.1 million due to lower ridership from the prolonged winter in Shenyang.
In the UK, bus revenue was down 0.7 per cent at $129.9 million due to tighter quality incentive targets.
In Singapore, listed unit SBS Transit’s Q1 revenue fell 2.8 per cent to $174.6 million on lower bus fare revenue. As a result, net profit slumped 12.7 per cent to $16.4 million. SBST said the fall in bus fare revenue was partially offset by higher rail fare revenue and advertisement revenue.
Q1 operating expenses also dropped 2.1 per cent to $155.6 million, mainly due to lower fuel and electricity costs, lower repairs and maintenance and lower other operating expenses but partially offset by higher depreciation expenses.
ComfortDelGro said revenue from the overseas bus businesses continues to outstrip that of the Singapore operations, accounting for 60.9 per cent of total group bus revenue, against 55.3 per cent in the same period last year.
Apart from the bus business, ComfortDelGro’s taxi, automotive engineering services, rail, vehicle inspection and testing, and driving centre businesses also experienced growth in Q1. At group level, growth in the Singapore and UK taxi operations allowed Q1 revenue to expand 5.0 per cent to $236.6 million. Revenue from the rail business rose 4.6 per cent to $28.7 million on higher average daily ridership for the North East Line, and the Punggol and Sengkang LRT lines. Together with rental and advertising income, total Q1 revenue from the rail business grew by 6.7 per cent to $31.9 million. Q1 revenue for the vehicle inspection and testing business was up 6.7 per cent to $20.7 million on a greater number of vehicles inspected, as well as the higher number of projects completed by the non-vehicle testing unit.
ComfortDelGro shares closed yesterday at $1.49.
SingTel – OCBC
Paring fair value to S$3.40
Stronger 4Q10 results due to forex. SingTel posted a much stronger-than-expected set of 4Q10 results. Revenue jumped 25.4% YoY (+0.5% QoQ) to S$4470.6m, or nearly 32% ahead of our forecast, driven by robust 13% growth in Singapore, while Optus’ revenue grew by 6.1%; the steep 26% strengthening of the AUD also played a large part. Net profit climbed 12.4% YoY and 2.5% QoQ to S$1015.2m, or nearly 50.8% above our estimate; this after associate earnings grew by 6.1% YoY, boosted by the significant 15% appreciation of the IDR and other fair value gains on mark-to-market valuations of foreign currency denominated liabilities of associates. For
the full year, revenue rose 13% to S$16,870.9m, or 6.8% ahead of our forecast, while net profit also climbed 13% to S$3907.3m, or 9.6% above our estimate. SingTel declared a final dividend of 8 S cents per share, bringing the total dividend for FY10 to S$0.142, or a payout ratio of 58%.
Outlook for Singapore mixed. For FY11, SingTel expects its Singapore operating revenue to grow at mid single-digit level, driven by higher mobile, IT & Engineering and mio TV revenue; but EBITDA margin is expected to decline to around 35% and EBITDA to grow within low to mid single-digit range. We suspect that this is mainly due to its higher Pay TV content cost (for new sports packages it will start broadcasting from June) plus continued customer acquisition and rollout costs. Capex is estimated at around S$830m, while free cash flow is expected at around S$1.1b.
Australia operations likely to remain stable. For Australia, SingTel expects both operating revenue and EBITDA to grow at mid single-digit levels; capex is estimated at around A$1.2b, which it will use mainly for investments in its mobile network, while free cash flow is expected to be above A$1.0b. Associates-wise, SingTel expects their ordinary dividends to increase, with higher profits reported by Telkomsel in 2009.
SingTel also expects a dividend payout of around 45-60% of underlying net profit.
Reducing fair value to S$3.40. In line with the latest guidance and fresh forex assumptions, we raise our FY11 revenue estimate by 10.7% and our earnings forecast by 4.3%. But to account for the recent declines in the market value of its associates, we pare our SOTP-based fair value from S$3.51 to S$3.40. Given that there is still 14.5% upside from here, we maintain our BUY rating.
SingTel – Phillip
FY2010 Results
• FY2010 revenue of S$16,871m, net profit of S$3,907m
• Strong performances by Singapore and Australian operations as well as regional mobile associates
• Maintain buy recommendation with fair value reduced from S$3.52 to S$3.43
FY2010 Results
SingTel reported FY2010 operating revenue of S$16,871m (+13.0% y-y) and net profit of S$3,907m (+13.3% y-y). Revenue was 0.2% below our estimate of S$16,906m while net profit was 1.8% above our forecast of S$3,837m. It announced a final dividend of S$0.08 per ordinary share in FY2010, which was higher than S$0.069 in FY2009. This brought the total dividend for FY2010 to S$0.142 compared to S$0.125 in FY2009.
The revenue from its Singapore operations increased by 8.1% to S$5,995m while the revenue from Optus rose by 7.5% to A$8,949m. Furthermore, the share of ordinary earnings from the regional mobile associates was better by 19.2% to S$2,420m.
FY2011E Outlook
SingTel expects the operating revenue for the Singapore and Australian businesses to grow at mid single-digit level. For its Singapore operations, it anticipates EBITDA to fall within low to mid single-digit range. Furthermore, it expects earnings from Bharti to be diluted by its acquisition of Zain and investment in 3G spectrums. Moreover, Telkomsel’s revenue is likely to grow at single-digit level with a slight drop in EBITDA margin. The earnings will continue to be affected by fluctuations in regional currencies.
Greater competition in Singapore and India
We expect SingTel to encounter greater competition in FY2011E. It mentions that it is spending more money to purchase content programs for mioTV so that it can attract a greater number of subscribers. Furthermore, there are connection costs to ensure that mioTV subscribers have access to set-top boxes. There will also be higher acquisition costs to ensure that it maintains its lead in the mobile and broadband market. Besides, IDD rates will drop due to more competition by other telecommunications operators. At the same time, we would like to highlight that Bharti faces stiff competition in the Indian mobile market and we project growth of only 2% in its revenue. As a result, we have reduced the earnings forecast by 5.6% 9.2% and 9.4% to S$3,972m, S$4,141m and S$4,179m in FY2011E, FY2012E and FY2013E respectively.
Maintain Buy recommendation and reduce fair value from S$3.52 to S$3.43
We believe that SingTel will be innovative and beat its competitors in the markets where it has an interest. In fact, we expect growth of 9.3% and 8.3% in the revenue for its Singapore and Australian operations respectively in FY2011E. However, for the regional mobile associates, we expect growth of only 2.7% in the share of profits to S$2,514m for FY2011E due to greater competition. We maintain our buy recommendation on account of SingTel’s competitive edge in many of the regional markets. As we have reduced our earnings estimates, the fair value has been reduced from S$3.52 to S$3.43 based on the discounted cash flow model.
SingTel – AmFraser
Higher costs ahead
• SingTel’s FY10 EPS was in line with market consensus, though this was a marginal 2% below our estimates.
• The healthy 13% YoY growth in underlying net profit to $3.9bil was boosted by (1) 18% YoY jump in associate contribution to $2.4bil, and (2) 19% YoY surge in EBIT contribution from wholly-owned Optus in Australia to $1.3bil. Together, these accounted for 68% of group EBIT.
• Surge in Australia-Singapore dollar rate of 11% YoY played a big role, as Optus reported more moderate 8% YoY growth in local currency terms. In particular, 2HFY10 growth was largely driven by 27% YoY A$ appreciation, as A$/S$ had plummeted to parity levels in 2HFY09.
• But Optus also performed well at core operating level, driven mainly by mobile subscriber growth of 9% YoY to 8.5 million. Postpaid segment saw monthly net adds of 50,000, while ARPU inched up by $1 to $69/month. Emphasis on higher value iPhones and smartphones however, squeezed Optus’s EBITDA margins in 1Q to 3Q. But benefits from these higher value-added base led a recovery in 4Q, mitigating FY margin fall to 24%. Mobile accounts for more than 60% of earnings.
• At Associates, contribution from 35%-owned Telkomsel in Indonesia was the biggest driver; up 32% YoY led by core earnings recovery, while that from 32%-owned Bharti in India was up 13% YoY helped by fair value adjustment effects. Together, these made up 80% of Associates. Against S$, Indonesian Rupiah rose 2% while Indian Rupee fell 4%, on average YoY.
• EBIT at mature Singapore operations grew a modest 4% YoY. While topline growth (8% YoY) was buoyed by mobile postpaid and IT and engineering (+32% YoY) segments, these dampened EBITDA margin to 38% from 39% in FY09. Higher handset subsidies, higher mio TV content costs and lower typical IT margins were to blame. IT and engineering prospects is supported by a strong S$1.3bil order book and peak fibre rollout for OpenNet ahead.
• Overall, we lower forecasts by 3% – Management guides for mid-single digit core revenue growth, while EBITDA margin for Singapore will be squeezed to 35%. One key factor will be higher costs associated with its fledging pay TV business.
• Upside at associates will come from Telkomsel’s earnings, as well as an increase in associate dividend payout. Bharti’s earnings will be diluted by acquisition financing costs for Zain Africa BV and investment in 3G spectrum.
• Our fair value is fine-tuned slightly to $3.04 on DCF approach – we maintain HOLD. SingTel is raising FY10 DPS to 14.2 cents, with final DPS of 8 cents declared. Yield of 5% is decent but not overlycompelling.
SingTel – CIMB
Stormier weather overseas
Post-results conference call
Cutting forecasts and target price; maintain UNDERPERFORM. SingTel’s post-FY09 results conference did little to change our pessimistic view, except that we now believe dividend payouts will remain at the higher end of its policy given a lack of acquisition targets. We expect Singapore’s FY11 core net profit to decline 7% yoy on higher costs related to mio TV content and installation. Bharti and Telkomsel, which normally help lift earnings, face headwinds from soaring 3G spectrum costs and regulatory risks in India, and rising competition in Indonesia. We cut our FY11-12 core net profit estimates by 9-11% and sum-of-the-parts target price by S$0.30 to S3.00 on lower estimates for Singapore, Bharti and Telkomsel. Switch to M1 for exposure to Singapore telcos and Axiata for exposure to regional telcos.
Key takeaways
Lower margins in Singapore. SingTel expects its EBITDA to decline to low-to-midsingle digits yoy on the back of mid-single-digit growth in revenue. This is due to content cost pressures for mio TV (we believe referring largely to the football World Cup and Barclays Premier League rights), installation costs for mio TV and continued erosion of IDD margins to VoIP. On top of this, we believe more intense competition for subscriber acquisition and retention will push up subsidies, especially after M1 and StarHub secured the rights to resell iPhones.
Mio TV gaining momentum. SingTel added a record 36k (or +23%) mio-TV subscribers as consumers signed up for its early-bird promotions even before the start of the next BPL season. It also attributed the strong growth to its new content line-up for its video-on-demand service.
Higher capex on WBB at Optus. Optus is raising its capex in FY11 to A$1.2bn from A$1.0bn in FY10 mainly for its wireless broadband (WBB) infrastructure. It has been upgrading its backhaul, where average bandwidth has risen 3-5-fold from 1-2 E1 lines to 6-7 E1 presently. Each E1 provides 2Mbps of capacity. Despite the strong take-up of WBB, it has yet to see any migration away from fixed broadband.
Dividend payouts to remain high. SingTel said it benchmarks its dividend yields to those of Singapore blue chips and regional telcos. It continues to manage its balance sheet to maintain financial flexibility for possible acquisitions. Excluding Bharti’s earnings because the telco pays negligible dividends, SingTel’s dividend payout is 74%. We believe payout will remain at the top end of its policy of 45-60% given a dearth of sizeable acquisition targets. SingTel admitted that Bharti’s acquisition of Zain Africa has removed one of the last remaining targets available. Closer to home, Vietnam remains a possible acquisition target but progress by the authorities has been agonisingly slow, in our view.
Punitive recommendations by Indian regulator. Separately, the Indian telecom regulator (TRAI) has proposed a series of recommendations on spectrum and licensing:
• The most important recommendation is that operators with spectrum of more than 6.2 MHz would have to pay a one-time fee based on 3G prices. The excess spectrum in 900 MHz and 1800 Mhz bands will be charged at 1.5x and 1.0x the cost of 3G spectrum respectively. Operators holding spectrum in excess of 8 MHz will be charged 1.3x the 3G price. This amount would be pro-rated for the period of their licences, subject to a minimum of seven years. In the meantime, bids for an all-India 3G spectrum continue to soar, crossing the US$3.2bn mark or more than four times its reserve price.
• Secondly, upon expiry of the licences, the 900 MHz will be exchanged for 1800 MHz spectrum as TRAI plans to re-farm (reuse) the 900MHz band after its expiry. 3G prices will be adopted as the current price of spectrum in the 1800 MHz band.
• Thirdly, licences fees will fall 6% by FY14 from the current 6-10% but this would be offset by higher spectrum charges, which will range from 2.2% to 10% from 3-8% previously.
• Finally, in terms of M&As, the government has waived the 3-year lock-in period. However, any merged entity cannot exceed 30% in revenue and/or subscriber base from 40% before and the total number of operators cannot hold drop to fewer than six in any service area (from four before). The merged entity also cannot hold more than 14.4 MHz.
Bharti likely to be hard-hit. We believe Bharti would be among the most affected and the one-time fee for excess 2G spectrum is arguably the most punitive measure and could be the one drawing the most resistance. The media reported that TRAI estimates Bharti would pay about Rs 34.98bn (Rs9.2/share) from the one-time fee and after include cuts in licence fee, the net impact on Bharti is about Rs15bn (Rs3.9/share).
The cap on spectrum at 8 MHz for all service areas and 10 MHz for Delhi and Mumbai for GSM operators arguably makes securing 3G spectrum all the more critical, especially with operators having to return their 900 MHz in exchange for 1800 MHz upon expiry of their licences. On the flipside, the higher the 3G prices, the more operators would have to pay as they renew their spectrum. Finally, we do not think that the M&A norms have been sufficiently relaxed as the one-time fee beyond 6.2 MHz would deter consolidation and the 30% threshold for a merged entity precludes most of the leading operators from consolidating.
Lastly, bids for the 3G spectrum continue to soar, reaching US$3.33b. Coupled with its financing for Zain Africa, the cost of the 3G spectrum will put more strain on Bharti’s balance sheet.