Singpost – OCBC
Still on the lookout for growth
- No surprises in results
- Still exploring investment opportunities
- To redevelop retail space in SPC
Results in line
Singapore Post (SingPost) reported a 7.6% YoY rise in revenue to S$239.6m and a 7.3% increase in net profit to S$42.2m in 3QFY15, such that 9MFY15 revenue and net profit accounted for 75% and 77% of our full year estimates, respectively. Mail revenue fell 2.3% YoY to S$130.1m in 3QFY15, due to lower contributions from domestic and international mail; this despite a postage rate hike from Oct last year. Logistics revenue increased 20.7% YoY to S$122.1m, aided by positive contributions from new acquisitions. We understand that if the impact of the acquisitions were excluded, segment revenue would have been relatively flat. Retail & eCommerce saw a 1.3% rise in revenue in the quarter to S$22.9m.
Mail remains challenging
In the quarter, domestic mail revenue fell 1.7% YoY while international mail revenue declined 2.7% as the transshipment business becomes increasingly competitive with more commercial operators in the region. In the face of such competition, the group decided not to sacrifice margins for the sake of revenue. Meanwhile, Singapore, which is classified as an industrialized country by the Universal Postal Union, pays higher Terminal Dues (TDs) or settlement rates for delivery of outbound mail at country of destination. TDs have increased by up to 42.6% over the past years, and have been weighing on the international mail business.
To continue exploring opportunities
Looking ahead, the group plans to continue exploring investment opportunities in Asia Pacific as part of its growth strategy. It has been expanding its end-to-end eCommerce logistics solutions network in the region and investing in eCommerce logistics infrastructure, technology and capabilities. Meanwhile, SingPost also announced that it intends to redevelop the retail space in Singapore Post Centre. However details are scarce for now as the group has so far only appointed consultants to advise on such redevelopment. Rolling forward our valuations, our fair value estimate rises slightly from S$2.17 to S$2.19. Maintain BUY.
Singpost – OCBC
Still on the lookout for growth
- No surprises in results
- Still exploring investment opportunities
- To redevelop retail space in SPC
Results in line
Singapore Post (SingPost) reported a 7.6% YoY rise in revenue to S$239.6m and a 7.3% increase in net profit to S$42.2m in 3QFY15, such that 9MFY15 revenue and net profit accounted for 75% and 77% of our full year estimates, respectively. Mail revenue fell 2.3% YoY to S$130.1m in 3QFY15, due to lower contributions from domestic and international mail; this despite a postage rate hike from Oct last year. Logistics revenue increased 20.7% YoY to S$122.1m, aided by positive contributions from new acquisitions. We understand that if the impact of the acquisitions were excluded, segment revenue would have been relatively flat. Retail & eCommerce saw a 1.3% rise in revenue in the quarter to S$22.9m.
Mail remains challenging
In the quarter, domestic mail revenue fell 1.7% YoY while international mail revenue declined 2.7% as the transshipment business becomes increasingly competitive with more commercial operators in the region. In the face of such competition, the group decided not to sacrifice margins for the sake of revenue. Meanwhile, Singapore, which is classified as an industrialized country by the Universal Postal Union, pays higher Terminal Dues (TDs) or settlement rates for delivery of outbound mail at country of destination. TDs have increased by up to 42.6% over the past years, and have been weighing on the international mail business.
To continue exploring opportunities
Looking ahead, the group plans to continue exploring investment opportunities in Asia Pacific as part of its growth strategy. It has been expanding its end-to-end eCommerce logistics solutions network in the region and investing in eCommerce logistics infrastructure, technology and capabilities. Meanwhile, SingPost also announced that it intends to redevelop the retail space in Singapore Post Centre. However details are scarce for now as the group has so far only appointed consultants to advise on such redevelopment. Rolling forward our valuations, our fair value estimate rises slightly from S$2.17 to S$2.19. Maintain BUY.
SIAEC – OCBC
Muted results continue into 3QFY15
- 3QFY15 results disappoint
- Decline in aircraft checks to continue
- Unchanged FV; maintain SELL
3QFY15 results below expectations
SIA Engineering Company’s (SIAEC) weak performance continues as it reported a 23.5% YoY drop in its 3QFY15 PATMI to S$46.3m. The lower PATMI is mainly due to a 6.5% decline in its 3QFY15 revenue to S$265.3m as well as a 33.2% decrease in share of profits from associated and JV companies to S$25.3m. Similar to the trends seen in 1HFY15, SIAEC’s 3QFY15 saw lower revenue from its airframe and component overhaul services (ACS) segment on lower heavy checks though mitigated by higher fleet management programme (FMP) and line maintenance (LM) revenue. The plunge in share of profits from associated and JV companies came mainly from the engine repair and overhaul centres as 3QFY15 contributions fell 54.9% YoY to S$15.6m on lower in engine shop visits as engines’ check intervals are deferred with improvement modifications. SIAEC’s 9MFY15 PATMI were below expectations with a 29.2% drop to S$141.9m, as it formed 70.8% and 71.8% of consensus and our FY15F forecasts, respectively.
Outlook remains challenging for next 12 months
We expect the issue of deferred aircraft checks to have negative impact on SIAEC’s ACS revenue for the next 12 months. While FMP and LM revenue is likely to continue to show improvements, the higher subcontract costs will negate partially the increase in revenue. Efforts put in to manage costs through productivity and operating efficiencies is starting to bear fruit as SIAEC’s operating margin improved 3.6ppt QoQ to 9.2% in 3QFY15 and recorded a 9.5% reduction in staff costs. However, we believe there is a limit to which SIAEC can achieve through such cost management and we think the savings is unable to offset much of the decline in revenue in the near-term.
Unchanged FV; maintain SELL
Hence, given the disappointing results and still-muted outlook, we decrease our FY15F and FY16F PATMI forecasts by 3.8% and 8.9%, respectively. Rolling forward our valuations, our FV estimate remains unchanged at S$3.80 based on 20x FY16F PER (0.25 SD above 3-year historical average). Maintain SELL.
SIAEC – OCBC
Muted results continue into 3QFY15
- 3QFY15 results disappoint
- Decline in aircraft checks to continue
- Unchanged FV; maintain SELL
3QFY15 results below expectations
SIA Engineering Company’s (SIAEC) weak performance continues as it reported a 23.5% YoY drop in its 3QFY15 PATMI to S$46.3m. The lower PATMI is mainly due to a 6.5% decline in its 3QFY15 revenue to S$265.3m as well as a 33.2% decrease in share of profits from associated and JV companies to S$25.3m. Similar to the trends seen in 1HFY15, SIAEC’s 3QFY15 saw lower revenue from its airframe and component overhaul services (ACS) segment on lower heavy checks though mitigated by higher fleet management programme (FMP) and line maintenance (LM) revenue. The plunge in share of profits from associated and JV companies came mainly from the engine repair and overhaul centres as 3QFY15 contributions fell 54.9% YoY to S$15.6m on lower in engine shop visits as engines’ check intervals are deferred with improvement modifications. SIAEC’s 9MFY15 PATMI were below expectations with a 29.2% drop to S$141.9m, as it formed 70.8% and 71.8% of consensus and our FY15F forecasts, respectively.
Outlook remains challenging for next 12 months
We expect the issue of deferred aircraft checks to have negative impact on SIAEC’s ACS revenue for the next 12 months. While FMP and LM revenue is likely to continue to show improvements, the higher subcontract costs will negate partially the increase in revenue. Efforts put in to manage costs through productivity and operating efficiencies is starting to bear fruit as SIAEC’s operating margin improved 3.6ppt QoQ to 9.2% in 3QFY15 and recorded a 9.5% reduction in staff costs. However, we believe there is a limit to which SIAEC can achieve through such cost management and we think the savings is unable to offset much of the decline in revenue in the near-term.
Unchanged FV; maintain SELL
Hence, given the disappointing results and still-muted outlook, we decrease our FY15F and FY16F PATMI forecasts by 3.8% and 8.9%, respectively. Rolling forward our valuations, our FV estimate remains unchanged at S$3.80 based on 20x FY16F PER (0.25 SD above 3-year historical average). Maintain SELL.
SMRT – DBSV
Riding high
- 3Q15 results in line; net profit up by 59% y-o-y
- Fare business segments turned in positive EBIT as expected
- Sustained low oil price could provide further tailwind for operating results
- Maintain BUY, TP: S$1.90
Highlights
3Q15 net profit tracking well
- 3Q15 net profit was higher by 59% y-o-y to S$22.6m, driven by revenue growth of 6.8% and lower increase in operating expenses (+4.2%). The higher costs were due to depreciation (+14%), repair and maintenance (+7%) and other operating expenses (+10%), offset by lower electricity and diesel costs (-7.3%). Staff costs increased only marginally by 0.6%. 9M15 net profit accounts for 72% of our forecasts, similar to last year.
- The 10.6% q-o-q fall in net income was largely due to a smaller EBIT contribution from taxis (S$0.8m, vs S$3.4m in 2Q15), which we understand to stem from non-recurring write-offs from some early retirements within its fleet. We should see taxis’ contribution revert to normal in 4Q15.
Fare business turned in profits vs losses last year
- Fare business turned around with a positive EBIT of S$1.9m, compared to a loss of S$8.9m in 3Q14. The major reversal is a result of significantly lower losses from bus operations at –S$0.5m, vs loss of S$8.7m last year, and is tracking within our expectations.
- Non-fare segments continue to perform well with rental remaining as the main EBIT contributor.
Outlook
Recently announced fare increase to provide support
- The Public Transport Council (PTC) has just approved a 2.8% fare increase effective 5 April’15, and this should provide support to its bottomline. We have factored this in, and are currently projecting a 22% net profit growth in FYE Mar’16F. We have also pencilled in a 1% fare decline in 2016.
Benefits from low oil price to continue
- Oil prices have corrected to below c.US$50/bbl from above US$100/bbl just about six months ago. We expect SMRT to continue to benefit through lower diesel and electricity costs. Assuming oil price continues to stay low at current levels, this should provide further benefit to land transport operators.
Bus tender outcome should not pose much downside risks
- The Government Bus Contracting tender for the first package (“Bulim package”) closed on 19 Jan’15, and the results are expected to be out in 2Q15. We have already factored in the incumbents (SMRT/SBSTransit) not winning the competitive tenders and just retaining nine out 12 packages.
Valuation
Our target price of S$1.90 is based on the average of our discounted cash flow (DCF) and price-earnings ratio (PER) valuation methodology. We adopt a DCF model as the business has previously shown a stable and predictable pattern, while the PER methodology takes into account near term earnings volatility. We peg our PER valuation at 18x FY16F. DCF methodology is based on a weighted cost of capital at 5.2% and a terminal growth assumption of 1%.
Risks
Regulatory changes
- Significant changes in the regulatory framework that could benefit or pose a risk to the Group’s financials.
Service disruptions
- Further train service disruptions leading to higher repair/ maintenance costs, operating expenses and regulatory fines.
Oil price spike
- Energy and fuel costs account for about 12% of SMRT’s costs and a surge in oil price may impact margins and vice versa. The surge in oil price may have a greater impact on SMRT compared to CD (at thisjuncture), given the latter’s proactive stance in hedging.