SPH – BT
SPH shares fall after mall bid
SHARES of media group Singapore Press Holdings (SPH) fell as much as 4.9 per cent yesterday before closing 3.9 per cent down on analysts’ fears over its strong bid for a mall.
But most analysts were upbeat on the fundamentals of the mall.
On Tuesday, a joint venture comprising SPH (60 per cent), NTUC FairPrice (20 per cent) and NTUC Income (20 per cent) emerged as the top bidder for a mall now being developed by HDB in Clementi.
The consortium’s top bid of some $542 million was about 42 per cent higher than the second highest bid of $382 million.
SPH shares closed 15 cents down at $3.74 yesterday.
‘Based on our preliminary calculations, we think SPH may have been unnecessarily aggressive in its bid for Clementi Mall,’ said Citigroup analysts Rigan Wong and Horng Han Low in a note.
DBS Group Research cut its target price for SPH to $4.00 from $4.22, and downgraded the stock to a ‘hold’ from a ‘buy’.
CIMB Research, on the other hand, is maintaining its ‘neutral’ call on SPH and also keeping its target price intact at $4.38.
Also, most analysts were positive about the fundamentals of the mall.
‘Notwithstanding the price, we believe the mall is well located within the town centre, connected to a bus interchange/MRT station and has a good catchment area with 91,000 residents and 65,000 students in the vicinity,’ said DBS Research analyst Andy Sim.
JPMorgan similarly acknowledged the ‘premium location’ of this suburban mall, but qualified that the price offered by the SPH consortium was far too aggressive.
SPH – DBS
Overpaying for the mall
• SPH’s JV put in a bid of S$542m for Clementi Mall, 42% above second bidder
• Costly at c. S$3,055 psf NLA, vs other bids and latest valuation of other suburban retail malls
• Downgrade to Hold; lower TP: S$4.00
S$542m bid for Clementi Mall. SPH, in a JV with NTUC, submitted the highest bid of S$541.9m (amongst 6 bidders) for a 25,000 sqm GFA shopping mall at Clementi, in a tender that closed last evening (10 Nov). The bid of S$541.9m was above-market-expectations and is c.42% higher than the second bid of S$382m. The bid works out to S$2,014 psf GFA.
Low net yield est at 4.5% – 5%, vs current retail cap rates of 5.5% to 6%. The mall, which is part of a larger 40-storey development that includes two blocks of HDB flats and a bus interchange, comprises two basement levels and five levels above ground with a maximum net floor area of 193,752 sf. HDB will build the core structure and façade, and will hand over to the winning bidder around Aug 2010. The estimated cost of fit-out is around S$50m. This raises the cost further and works out to S$3,055 psf NLA, which is high compared to valuations of other suburban retail malls, ranging from c.S$1,700 to S$2,350 psf. Assuming an estimated gross monthly rental of S$15-16 psf pm, the net yield works out to about 4.5% – 5%, versus current retail cap rates of 5.5% -6%.
Attracted by the potential and revenue sources. Notwithstanding the price, we believe the mall is well located within the town centre, connected to bus interchanges/MRT station and has a good catchment area with 91k residents and 65k students in the vicinity. Furthermore, we believe SPH has been aggressive in looking for additional sources of revenue as Sky@Eleven contribution ceases in 2010. Funding, in our view, could be via its internal resources.
Downgrade to Hold, TP: S$4.00. We believe share price could be affected in the near term as the market will view this piece of news negatively given that: (i) SPH seems to have been overly aggressive; (ii) there will be a higher risk profile attached on its foray into a higher risk project vis-à-vis the stable print business; and (iii) lower prospects of special dividends in FY10 when Sky@Eleven is completed, a catalyst the market was looking for previously. Our revised TP of S$4.00 is based on a 5% discount to our sum-of-parts RNAV.
StarHub – Phillip
3Q09 results
3Q09 results. StarHub reported 3Q09 operating revenue of S$537.1m (+2.4% yoy) and net profit of S$85.2m (+7.1% yoy). Net profit rose because of higher revenue, lower staff costs and marketing and promotion expenses as well as decrease in tax provisions. It also announced an interim dividend of S$0.05 per ordinary share for 3Q09, which was higher than S$0.045 for 3Q08.
Performances of the various business units. The revenue of the various business units was as follows: mobile revenue was S$276.8m (+4.7% yoy), Pay TV revenue was S$100.3m (+1.9% yoy), broadband revenue was S$58.8m (-6.1% yoy), fixed network services revenue was S$79.8m (+6.2% yoy) and sale of equipment was S$21.4m (-11.3% yoy).
Mobile revenue was higher due to an increase in the number of post-paid and prepaid customers to 923,000 (+5.1% yoy) and 961,000 (+11.2% yoy) in 3Q09. Pay TV revenue increased because the number of customers gained by 2.9% to 535,000. Broadband revenue dropped as customers selected lower speed and discount plans. Fixed network services revenue rose as revenue from data and internet services increased more than the decline in voice services revenue. Sale of equipment fell as customers bought cheaper mobile phones.
Greater competition in Pay TV. We expect more competition for StarHub in Pay TV. StarHub had lost the bid to SingTel for the rights to BPL matches for a period of three years beginning August 2010. We expect football fans to switch from StarHub’s Cable TV to SingTel’s mioTV and this will affect StarHub’s revenue and profit.
iPhone this year. StarHub announced that it has reached an agreement to offer iPhone to its customers later this year. We believe that this will boost its number of mobile customers and help it to compete against SingTel and M1, which also offer iPhones. We expect StarHub to market its iPhone through promotions and providing discounts to customers.
FY2009F Outlook. StarHub expects the service revenue for 2009 to be maintained at 2008 level. It expects to pay dividend of S$0.05 per ordinary share per quarter from 3Q09. This brings the total dividend for FY2009F to S$0.19.
Maintain HOLD recommendation and target price at S$2.05. Based on the valuation using the discounted cash flow (DCF) model, we obtain a fair value of S$2.05. We maintain our hold recommendation, as StarHub is likely to face greater competition in the telecommunications market to maintain its market share. Investors can hold the stock for dividends; the dividend yield is expected to be 9.8% in FY2009F.
SingTel – DBS
Remarkable pay TV subscriber growth
At a Glance
• Underlying profit of S$952m inline with ours and consensus expectations of S$937-S$970m.
• Interim dividend of 6.2 cents inline with expectations
• Revised guidance for Singapore EBITDA to register lowsingle digit growth (from stable earlier), inline with our expectations.
• We would be buyers below S$2.85. Maintain HOLD.
Comment on Results
Singapore profit inline and market share gains. Singapore net profit of S$318m ( +11% yoy, -5% qoq) was inline. SingTel increased its mobile market share to 46.2% from 45.9% in 1Q10. Pay TV subscriber base increased by 25K (versus StarHub’s 5K) from strong take up of bundled mio Home plans. This implies SingTel’s pay TV market share increased to 18.9% from 15.8% in 1Q10.
Australia profit slightly higher due to lower interest expense. Net profit of A$152m (+21% yoy, +9% qoq) was helped by A$15m sequential reduction in interest expense due to lower interest rates. Optus continued to add mobile subscribers, where higher revenue growth, despite lower margins, resulted in higher EBITDA (7% yoy, 3% qoq). Strong A$ (up 7% sequentially) continues to lend support
Associate results inline. Post-tax contribution of S$472m (+19% yoy, -5% qoq) was helped by strong performance of Telkomsel. It was lower sequentially as 1Q10 included forex gains of s$23m at Bharti.
Recommendation
Bharti weakness should be offset to some extent by strong Telkomsel and strong AUD and IDR. Maintain HOLD with unchanged target price of S$3.15
StarHub – DBS
Higher dividends amid rising competition?
At a Glance
• Excluding S$3m forex gains, net profit of S$82m inline with consensus and our expectations.
• Raised dividend guidance, surprisingly, to 5 cents each quarter (4.5 cents earlier). The dividends may not be sustainable in the long term, in our view, and leave limited flexibility for the new CEO, joining in Jan 2010.
• Management mentioned that EPL loss should not be EBITDA and FCF negative, bit too optimistic in our view.
• Maintain FULLY VALUED in view of regulatory changes due to National Broadband Network and rising competition in the pay TV business, potentially spilling over to mobile business.
Comment on Results
3Q09 revenue of S$537m (+2%yoy, +1% qoq) and underlying profit of S$82m (unch. yoy, +5% qoq) after excluding forex gains were in line with our expectations. StarHub has achieved 77% of our FY09F forecast. 4Q is typically weak due to festive promotions.
Service EBITDA margins improved to 33.4% versus 31.5% in 2Q09. Mobile margins improved to 37.8% versus 36.8% in 2Q09, as StarHub was not overly aggressive in customer acquisition, as mobile market share declined slightly to 28.1% versus 28.4% in 2Q09. Pay TV margins improved to 21.4% versus 19% in 2Q09, which was impacted by one-off content costs in 2Q09. Fixed lines margins improved to 41.9% versus 38.3% in 2Q09 as StarHub benefited from higher contribution from corporate data business.
Recommendation
Annual DPS of 20 Scts implies annual dividends of S$343m, translating to earnings payout ratio of 118% on our FY10F estimates as we expect an 8% yoy decline in FY10F earnings. StarHub can still support the dividend payout in 2010, due to lower cash tax in 2010 but we are doubtful beyond that. Maintain FULLY VALUED. The stock trades at 6.1x FY09F and 6.3x FY10F EV/EBITDA compared to M1’s 5.9x and 5.7x EV/EBITDA respectively.