SingPost – DBS
The hunt for acquisition?
• Strong credentials help Singpost raise cheap debt.
• Potential investments should more than offset weakness due to higher terminal dues.
• HOLD with TP of S$1.05 based on 6% target yield.
Strong credentials help Singpost raise cheap debt. Singpost is issuing S$200m 10-year notes at fixed rate of 3.5% per annum. The company intends to use the proceeds for (i) working capital requirements (ii) machine related capex and (iii) regional investments. S&P has rated the notes as AA-, the same rating that Singpost secured for its S$300m notes issued in 2000. Although, not reflected in our model yet, it would raise FY10F net debt to equity to 1.3x from 0.5x.
Free cash flow adequate for capex and working capital, in our view. Management had earlier indicated that capex for replacement or upgrade of its mail-sorting machine in 2013-2014 would be S$70m-S$100m. Assuming dividend payout of S$130m cash (6.7 Scts DPS) and S$30m cash to be retained each year, Singpost should generate sufficient operating cash to fund machine capex in 2013-14. We do not see any issue with refinancing of existing notes in 2013 either
Potential investments (if any) could more than offset weakness due to higher terminal dues. While Singpost has not indicated anything specific, our key assumption is that Singpost can make S$200m worth of investments in the region (possibly logistics industry as indicated earlier) at a reasonable 12-13x PER, similar to its own. After deducting the cost of debt, the investments would still add S$10m or 6% to Singpost FY11F earnings. This should offset potential weakness of up to 5% due to higher terminal dues (interoperator charges) in the international mail segment as Singapore has been re-classified as a developed country from March 2010 onwards (was not reflected in our model).
SATS – DBS
Better results on the cards
• Air travel recovery faster than expected
• Project 20% yoy rise in 4Q earnings, ending FY10 at S$185.4m, above mean estimates
• Overall market growth more than offset potential entry of 3rd Ground Handler
• Reiterate Buy, TP raised to S$3.20
Project 20% growth yoy for 4Q10F. Most recent data from Changi Airport showed flights, passengers and cargo grew by 5.5%, 10.1% and 20% yoy respectively in Jan'10. We project SATS to show a 4Q10F net profit growth of 20% yoy, ending its full year at S$185.4m, above mean and our original estimates of S$178m. We are also expecting a final dividend of 8 Scents, bringing full year DPS to 13 Scents (76% payout). Going forward, we expect continued recovery in its aviation division, driven by a projected surge in CY2010 tourist arrivals (11.5m-12.5m: STB).
Market growth more than offset entry of 3rd player. The potential entry of a 3rd ground handler could happen soon, given that Changi Airport Group called for tender in Nov'09. In our view, the two likely candidates are Aero-Care and JetStar/AirAsia. We have factored in a 2ppt decline in its share of passengers handled from FY11F. However, SATS will benefit from market growth, which more than offset any potential erosion of market share, in our view.
Reiterate Buy, TP raised to S$3.20. We raised our FY10F forecast by 4% and FY11F/12F by c.2%, factoring in (i) higher pax/cargo handled; (ii) higher contribution from JVs; (iii) lower interest expenses, but offset partially by lower market share assumed. We adjust up our TP to S$3.20, from S$3.09. The counter is trading at 15.2x FY10F PE, but in view of its strong CAGR of 17%, this is projected to decline to 12.1x in FY12F. Valuations are still reasonable at prospective PE of 13.6x, P/B of 1.8x and a yield of c.5.4% (on FY11F earnings), which will support share price.
MIIF – BT
MIIF sells Arqiva stake
SHARES of Macquarie International Infrastructure Fund (MIIF) rose 3.7 per cent yesterday after it announced that it has agreed to sell its 8.7 per cent interest in Arqiva in the UK for a total cash consideration of £116.5 million (S$244.9 million).
The net proceeds are expected to total $240.1 million, said MIIF, which is now targeting acquisitions in Asia.
The announcement, made before the start of trading, led the stock to close up two cents at 56 cents, after touching an intraday high of 58 cents.
The divestment will be made to three infrastructure investors, all of which are existing shareholders of Arqiva.
‘Following the sale of MIIF’s interest in Arqiva, its portfolio will comprise entirely of direct investments in Asia. This will be a significant milestone for MIIF,’ said John Stuart, CEO of MIMAL, MIIF’s manager. ‘Importantly, the proposed sale is at a significant premium to the value implied by MIIF’s prevailing share price.’
Assuming the sale of MIIF’s interests in Arqiva as well as Macquarie European Infrastructure Fund and Canadian Aged Care, MIIF is expected to have a cumulative cash balance at the end of May this year of approximately $474.0 million which equates to 35 cents per share. The value of MIIF’s remaining investments is $523 million, or 39 cents per share, according to the fund.
‘MIIF’s management is now focused on identifying attractive acquisition investments in Asia. With this significant cash balance, MIIF is well positioned to capitalise on these opportunities should they arise in the course of the year,’ said Mr Stuart.
Other options include a share buy-back or payment of a special dividend, he added.
SingPost – OCBC
Issues S$200m worth of notes
Issues S$200m worth of notes. Singapore Post (SingPost) is issuing S$200m in principal amount of fixed rate notes due 2020 with a coupon rate of 3.5%. With a denomination of S$250k, the notes will have a tenor of 10 years from the issue date. SingPost intends to use the net proceeds to finance new investments as part of its growth strategy. The group also expects to use part of it to fund anticipated capital expenditure and working capital requirements.
Comments on the note issue. We had previously mentioned that the group may have to replace or upgrade its mail processing system (bought in 1997-1998) by undertaking capex plans gradually. SingPost also has bonds (principal amount S$300m) maturing in Apr 2013. Given these reasons, this announcement did not take the market by surprise. In our view, it is also an opportune time to issue bonds now when interest rates are still low. As these are fixed rate notes, future increases in interest rates will not affect the group's interest expense.
Strong operating cash flows. SingPost's annual operating cash inflow has historically been substantial (average of S$164m each year from FY06- FY09). Standard & Poor's has also affirmed its AA- long-term corporate credit rating and axAAA ASEAN regional scale rating on SingPost, reflecting the group's "very strong market position in its core domestic and international mail business, high operating efficiency, and solid cash flow measures". Though S&P has revised the rating outlook to "negative" from "stable", this merely means that the long-term credit rating may be lowered, and is not necessarily a precursor of a rating change. Reasons cited were 1) weaker credit protection metrics for the next two years and 2) uncertainty over outcome of M&A activities. We note that even if the rating is lowered to A+, SingPost is still rated as "investment grade".
Broad-based recovery drives industry. Deutsche Post's CEO, Frank Appel, is "optimistic about the future, even though many uncertainties remain…"1 Led by strong Asian export volumes, FedEx recently reported an 18% jump in volume in its International Prority business2 , reflecting the region's recovery. With a broadening of the global economic recovery, arguably led by Asia, SingPost's plans to expand its reach in the region should yield positive results, if properly implemented. With the above reasons and more, we maintain our BUY rating on the stock with fair value estimate of S$1.16, giving a total return of about 12% (includes 5.8% expected dividend yield).
SingPost – BT
SingPost issuing $200m notes
Due 2020 and in $250,000 units, they will pay interest of 3.5% per annum
SINGAPORE Post plans to issue $200 million of fixed-rate notes, partly to capitalise on investment opportunities.
The notes, due 2020 and denominated in $250,000 units, will be cleared through the Central Depository, SingPost said yesterday. They will pay interest of 3.5 per cent per annum, semi-annually. The expected issue date is March 30.
‘As part of our growth strategy, we have been exploring investment and business opportunities in Singapore and the region,’ said SingPost’s deputy group chief executive and covering CEO Ng Hin Lee. ‘The notes provide us with ready financial capacity to fund any investment opportunities that may arise.’
Net proceeds from the issue will also be used for capital expenditure and working capital requirements.
DBS Bank and UBS have been appointed joint lead managers for the notes, which have been rated AA- by Standard & Poor’s.
S&P has also affirmed its AA- long-term corporate credit rating on SingPost – but revised its rating outlook from stable to negative.
‘We revised the outlook to negative to reflect SingPost’s weaker credit protection metrics for the next two years and uncertainty over the outcome of the company’s M&A activities,’ said S&P credit analyst Andrew Wong.
SingPost’s efforts to boost shareholder returns by venturing into more competitive, lower-margin businesses such as hybrid mail and logistics may result in the company taking longer than expected to repair its credit metrics, Mr Wong said.
SingPost’s move is the latest in a string of note issues.
Recently, Temasek Holdings sold $1 billion of notes due 2020, as part of its US$10 billion guaranteed global medium-term note programme.
In February, Singapore Press Holdings said that it was issuing $300 million of fixed-rate notes due 2015 as the first part of a new $1 billion multi-currency, medium-term note programme.
And in January, Sembcorp Marine quadrupled its multi-currency programme from $500 million to $2 billion.