Singpost – OCBC
On the growth path
- Healthy results
- Lower reliance on mail
- Prospects remain bright
Results in line
Singapore Post (SingPost) reported a 8.1% YoY rise in revenue to S$220.3m and a 5.5% increase in net profit to S$37.6m in 2QFY15, such that 1HFY15 revenue and net profit accounted for 48% and 50% of our full year estimates, respectively. Mail revenue rose 3.2% YoY to S$123m in 2QFY15, boosted by increased ecommerce transshipments in the international mail business line. This offset the decline in the traditional postal business in domestic mail and hybrid mail, which remain challenging. Logistics revenue rose 15.1% YoY to S$109m, while group operating margin remained steady at 21%, similar to a year ago.
Continues to invest for the future
In the past few months, the group continued to invest in its various business segments. Strategic investments include the acquisition of FS Mackenzie (UK), Tras-Inter Co (Japan), The Store House (HK) and Axis Plaza (Malaysia). SingPost has also been upgrading its postal infrastructure in Singapore; out of the S$100m investment, S$45m was for mail sorting machines which will be fully operational in Dec.
Mail as a % of total revenue lowest in history
Meanwhile, we note that mail accounted for 56% of total revenue in 2QFY15, the lowest the group has seen in its history. This used to be more than 75% in as recent as 2009, and has been decreasing over the years as SingPost sought to reduce its reliance on the mail business. This underscores the group’s efforts to build its other business segments such as logistics, retail and ecommerce.
E-commerce related revenue grows 20% YoY
Indeed, SingPost’s ecommerce-related revenue for 1HFY15 accounted for about 27% or S$116.1m of total revenue, representing a 20% YoY growth. With close to 1,000 ecommerce customers across the group and ecommerce package volumes registering double-digit growth YoY, we increase our FCFE growth rate assumption from 9% to 10% in our 3-stage DCF model, resulting in a slightly higher fair value estimate of S$2.17 (prev. S$2.09). In line with its usual practice, SingPost has declared an interim quarterly dividend of 1.25 S cents per share, payable on 28 Nov 2014. Maintain BUY.
Singpost – OCBC
On the growth path
- Healthy results
- Lower reliance on mail
- Prospects remain bright
Results in line
Singapore Post (SingPost) reported a 8.1% YoY rise in revenue to S$220.3m and a 5.5% increase in net profit to S$37.6m in 2QFY15, such that 1HFY15 revenue and net profit accounted for 48% and 50% of our full year estimates, respectively. Mail revenue rose 3.2% YoY to S$123m in 2QFY15, boosted by increased ecommerce transshipments in the international mail business line. This offset the decline in the traditional postal business in domestic mail and hybrid mail, which remain challenging. Logistics revenue rose 15.1% YoY to S$109m, while group operating margin remained steady at 21%, similar to a year ago.
Continues to invest for the future
In the past few months, the group continued to invest in its various business segments. Strategic investments include the acquisition of FS Mackenzie (UK), Tras-Inter Co (Japan), The Store House (HK) and Axis Plaza (Malaysia). SingPost has also been upgrading its postal infrastructure in Singapore; out of the S$100m investment, S$45m was for mail sorting machines which will be fully operational in Dec.
Mail as a % of total revenue lowest in history
Meanwhile, we note that mail accounted for 56% of total revenue in 2QFY15, the lowest the group has seen in its history. This used to be more than 75% in as recent as 2009, and has been decreasing over the years as SingPost sought to reduce its reliance on the mail business. This underscores the group’s efforts to build its other business segments such as logistics, retail and ecommerce.
E-commerce related revenue grows 20% YoY
Indeed, SingPost’s ecommerce-related revenue for 1HFY15 accounted for about 27% or S$116.1m of total revenue, representing a 20% YoY growth. With close to 1,000 ecommerce customers across the group and ecommerce package volumes registering double-digit growth YoY, we increase our FCFE growth rate assumption from 9% to 10% in our 3-stage DCF model, resulting in a slightly higher fair value estimate of S$2.17 (prev. S$2.09). In line with its usual practice, SingPost has declared an interim quarterly dividend of 1.25 S cents per share, payable on 28 Nov 2014. Maintain BUY.
Starhub – DBSV
Broadband, prepaid mobile decline
- 3Q14 net profit of S$ 97.7m (+2.5% y-o-y, +4% q-oq) was 3% below our expectations
- Service revenue growth weak on lower broadband, prepaid revenue
- 5Scts interim dividend declared, in line with expectations.
- Maintain HOLD with unchanged TP of S$4.30
Highlights
Revenue impacted by broadband, prepaid mobile
- Competition contributed to the continued decline in broadband revenues which fell 4.0% q-o-q. Prepaid revenues were impacted by SIM ownership restrictions. However, overall revenues were boosted (+2% y-o-y, +3 qo-q) by higher handset sales.
Profitability improved by grant income
- Despite being impacted by lower revenue levels, higher adoption grant income led to a q-o-q improvement in the bottom-line. However, profit margins are likely to decrease in 4Q14 with higher handset sales expected.
Outlook
Price competition in fixed broadband
- Competition in fixed broadband is eroding Average Revenue Per User (ARPU) for StarHub, resulting in lower earnings. The decline in ARPU is unlikely to reverse in the near term with StarHub likely to pursue its current strategy to preserve market share.
Postpaid to support mobile revenue
- Postpaid growth is likely to support the mobile segment despite weaker prepaid revenue. With higher portion of consumers moving to tiered data plans, postpaid ARPU is likely to see further improvement.
Valuation
Given healthy cash generation, we use discounted cash flow valuation (WACC 6.5%, terminal growth 0%) to derive a target price of S$4.30. Besides mid single digit growth, the stock offers FY14F yield of 4.8%.
Risks
Decline in mobile roaming
- A potential decline in mobile roaming could offset the gains from mobile data-repricing and broadband margins may decline sharper than expected.
Starhub – DBSV
Broadband, prepaid mobile decline
- 3Q14 net profit of S$ 97.7m (+2.5% y-o-y, +4% q-oq) was 3% below our expectations
- Service revenue growth weak on lower broadband, prepaid revenue
- 5Scts interim dividend declared, in line with expectations.
- Maintain HOLD with unchanged TP of S$4.30
Highlights
Revenue impacted by broadband, prepaid mobile
- Competition contributed to the continued decline in broadband revenues which fell 4.0% q-o-q. Prepaid revenues were impacted by SIM ownership restrictions. However, overall revenues were boosted (+2% y-o-y, +3 qo-q) by higher handset sales.
Profitability improved by grant income
- Despite being impacted by lower revenue levels, higher adoption grant income led to a q-o-q improvement in the bottom-line. However, profit margins are likely to decrease in 4Q14 with higher handset sales expected.
Outlook
Price competition in fixed broadband
- Competition in fixed broadband is eroding Average Revenue Per User (ARPU) for StarHub, resulting in lower earnings. The decline in ARPU is unlikely to reverse in the near term with StarHub likely to pursue its current strategy to preserve market share.
Postpaid to support mobile revenue
- Postpaid growth is likely to support the mobile segment despite weaker prepaid revenue. With higher portion of consumers moving to tiered data plans, postpaid ARPU is likely to see further improvement.
Valuation
Given healthy cash generation, we use discounted cash flow valuation (WACC 6.5%, terminal growth 0%) to derive a target price of S$4.30. Besides mid single digit growth, the stock offers FY14F yield of 4.8%.
Risks
Decline in mobile roaming
- A potential decline in mobile roaming could offset the gains from mobile data-repricing and broadband margins may decline sharper than expected.
SIAEC – DBSV
Navigating through turbulence
- 2QFY15 earnings disappoint, down 41% y-o-y
- Affected by deferments/cancellations of heavy aircraft checks, extension of engine check intervals
- Cut FY15/16F earnings by 23%/11% to factor in lower workload, margins
- Dividend cut also likely in FY15; downgrade to FULLY VALUED with lower TP of S$3.80
Worst quarterly showing in a long time. 2QFY15 net profit of S$42.1m was down 41% y-o-y and 21% q-o-q. Revenue dropped by 3%, dragged down by lower heavy maintenance revenue. The weaker capacity utilisation resulted in poor operating margin of 5.6% (vs. 7.0% in 1QFY15 and an average of 9.8% achieved in FY14). Growth in fleet management revenue resulted in high subcontract costs as well. Share of profits from associates and JVs also dropped sharply to S$29m (- 36% y-o-y) as the engine MRO centres underperformed. We had highlighted the weakness at SIE’s engine centres earlier as older engine models are being retired on an accelerated
basis and newer models require less engine shop visits, thus lowering utilisation rates and profitability.
Challenges expected to persist in near term. Management indicated that operating environment continues to be challenging in the near term as airlines may continue to extend maintenance cycles for airframes and engines in consultation with OEMs and relevant regulatory authorities. While pent up demand will come back eventually and longer term fundamentals remain intact for the MRO industry, timing of recovery remains uncertain. Meanwhile, pressure on margins continues, with rising business costs and intense competition. SIE has recently entered into a proposed JV with Boeing (49:51) to provide fleet management services to Boeing customers in South Asia Pacific region. This and other collaborations with strategic OEM partners should drive long term growth prospects for SIE.
Lower yield prospects. We cut our FY14/15F earnings by 23%/11% to factor in the challenges described above. Likewise, we lower FY15 dividend expectation to 16Scts (vs. 25Scts in FY14), including the 6Scts interim dividend already announced. Hence, current valuations are unattractive with SIE trading at 26x PE and 3.6% yield. Hence, we downgrade the stock to Fully Valued with a lower TP of S$3.80 (details inside).