Singpost – CIMB
Take profit
1HFY3/15 core net profit of S$73.7m formed 46% of our and 47% of consensus full-year forecasts. We view the results as largely in line as we expect a stronger 2H to be driven by the postage rate hike (effective Oct) and full contributions from its recent M&As. However, we cut our FY15-17 EPS by 4-9% to take into account the enlarged share base, and also in anticipation of higher costs as SPOST continues to expand its regional footprint. Our DCF-based target price is unchanged after taking into account a higher net cash position from the proceeds of the issuance of shares to Alibaba. While we like the stock fundamentally, we believe valuations are rich at this point, and would advise investors to take profit. Thus, we downgrade to Hold from Add.
Mail disappointed, logistics impressed
The mail segment disappointed, as domestic mail saw an unexpectedly sharp decline in revenue of 5% yoy (1Q: -2% yoy excluding one-off gains). Due to the lower proportion of higher-margin traditional mail revenue, mail operating margin fell to 27.6% (1Q: 28.4%) and operating profit fell 3% qoq. Meanwhile, logistics surprised us with a higher operating margin of 5.4% (1Q: 3.9%) despite larger contributions from the lower-margin freight forwarding businesses, including the recent acquisitions of Tras-Inter Co. and F.S. Mackenzie. The warehousing unit, Quantium Solutions, saw impressive revenue growth of 9% qoq, driven by an increase in ecommerce logistics activities.
Gaining traction in ecommerce but costs may escalate
In 1HFY15, SPOST had 1,000 ecommerce customers, up from 600 in FY14. Ecommerce accounted for 26.9% of 1HFY15 revenue, up from 23.8% in 1HFY14 (+20% yoy growth in ecommerce revenue). Management explained that in addition to regional customers, it was also targeting smaller brands looking to expand in a particular country. To address this market, SPOST plans to invest in its own delivery channel in ASEAN, which we believe will be capital intensive and is likely to put pressure on margins. We believe that volumes will have to come in more aggressively to match the costs from these ongoing investments.
We downgrade to Hold
SPOST’s share price has risen by 25% since Alibaba announced that it was taking a 10.3% stake in SPOST. At 24x FY16 P/E, SPOST’s valuations are already the highest among peers, while its earnings growth profile remains moderate as SPOST is still in the investment phase. We advise investors to take profit at the current levels, and would look for a better re-entry point.
Starhub – OCBC
Keeps FY14 guidance as expected
- No change to FY14 estimates
- Still intense broadband competition
- Expects EBITDA margin pressure
3Q14 earnings slightly ahead of forecast
StarHub Ltd reported its 3Q14 results last evening, which saw the telco posting a net profit of S$97.7m, up 2.6% YoY and 3.6% QoQ, which was also about 10% ahead of our forecast; this as EBITDA service margin remained relatively firm at 34.5% (versus 33.6% in 3Q13 and 34.0% in 2Q14). We note that this was mainly due to the 56.8% YoY jump (+228% QoQ) in other income to S$17.4m. Otherwise, revenue was just 2.3% higher YoY (+2.7% QoQ) at S$592.0m, or about 2% above our forecast. 9M14 revenue though slipped 0.3% to S$1739.9m, meeting about 74% of our full-year forecast, while net profit slipped 3.8% to S$276.2m, or about 76% of our FY14 estimate. Quarterly dividend was S$0.05/share as guided.
Intense broadband competition
As expected, StarHub experienced intense competition in its Broadband business, which saw revenue tumbling another 17.4% YoY and 3.5% QoQ (was down 17.3% YoY and 5.4% QoQ in 2Q14). Monthly ARPU also slipped to just S$35, despite adding another 6k subscribers in the quarter, as more existing customers renew their contracts with
lower price plans. Meanwhile, StarHub also saw a large 120k fall in pre-paid subscribers, although it did add 11k post-paid customers, keeping the post-paid churn at 0.9%. Pay TV business was fairly stable, with 4k new subscribers added, although ARPU was flat at S$51/month.
No change to FY14 guidance
StarHub has kept its FY14 guidance unchanged, with revenue likely coming in comparable to FY13 levels; EBITDA service margin at 32%; total capex spend at 13% of total revenue; also to pay out S$0.20/share dividend, or S$0.05 per quarter. By segment, StarHub expects revenue growth to come from its mobile and fixed network, but this will be mitigated by the still-competitive broadband business. The strong demand for the new iPhone 6/6+ will also put pressure on EBITDA margin in 4Q14.
Maintain HOLD with S$3.81 fair value
Given the affirmation in guidance, we see no reason to change our FY14 estimates. As such, our DCF-based fair value will also stay at S$3.81 for now. We also maintain our HOLD call.
Starhub – OCBC
Keeps FY14 guidance as expected
- No change to FY14 estimates
- Still intense broadband competition
- Expects EBITDA margin pressure
3Q14 earnings slightly ahead of forecast
StarHub Ltd reported its 3Q14 results last evening, which saw the telco posting a net profit of S$97.7m, up 2.6% YoY and 3.6% QoQ, which was also about 10% ahead of our forecast; this as EBITDA service margin remained relatively firm at 34.5% (versus 33.6% in 3Q13 and 34.0% in 2Q14). We note that this was mainly due to the 56.8% YoY jump (+228% QoQ) in other income to S$17.4m. Otherwise, revenue was just 2.3% higher YoY (+2.7% QoQ) at S$592.0m, or about 2% above our forecast. 9M14 revenue though slipped 0.3% to S$1739.9m, meeting about 74% of our full-year forecast, while net profit slipped 3.8% to S$276.2m, or about 76% of our FY14 estimate. Quarterly dividend was S$0.05/share as guided.
Intense broadband competition
As expected, StarHub experienced intense competition in its Broadband business, which saw revenue tumbling another 17.4% YoY and 3.5% QoQ (was down 17.3% YoY and 5.4% QoQ in 2Q14). Monthly ARPU also slipped to just S$35, despite adding another 6k subscribers in the quarter, as more existing customers renew their contracts with
lower price plans. Meanwhile, StarHub also saw a large 120k fall in pre-paid subscribers, although it did add 11k post-paid customers, keeping the post-paid churn at 0.9%. Pay TV business was fairly stable, with 4k new subscribers added, although ARPU was flat at S$51/month.
No change to FY14 guidance
StarHub has kept its FY14 guidance unchanged, with revenue likely coming in comparable to FY13 levels; EBITDA service margin at 32%; total capex spend at 13% of total revenue; also to pay out S$0.20/share dividend, or S$0.05 per quarter. By segment, StarHub expects revenue growth to come from its mobile and fixed network, but this will be mitigated by the still-competitive broadband business. The strong demand for the new iPhone 6/6+ will also put pressure on EBITDA margin in 4Q14.
Maintain HOLD with S$3.81 fair value
Given the affirmation in guidance, we see no reason to change our FY14 estimates. As such, our DCF-based fair value will also stay at S$3.81 for now. We also maintain our HOLD call.
SIAEC – OCBC
2QFY15 results below expectations
- 2QFY15 PATMI plunged 40.7% YoY
- More aircraft checks deferred
- Downgrade to SELL
Disappointing 2QFY15 results
SIA Engineering Company’s (SIAEC) reported a 3.0% YoY decline in its 2QFY15 revenue to S$285.2m and a 40.7% drop in PATMI to S$42.1m. Its 1HFY15 results were below expectation as its revenue and PATMI formed 47.8% and 34.5% of our FY15 forecasts. SIAEC’s 1HFY15 revenue decreased 0.7% to S$579.3m, due to lower airframe and component overhaul services (ACS) revenue from fewer aircraft checks, partly offset by the higher fleet management programme (FMP) revenue. Its 1HFY15 PATMI declined 31.7% to S$95.6m, on higher subcontract costs and a 36.2% YoY drop in share of profits from associated and JV companies to S$29.1m. SIAEC’s key JV, SAESL (services Rolls-Royce engines) experienced a 30% reduction in works on engine cowls due to improvement modifications that reduced engine shop visits. Its main associate, Eagle Services Asia, also saw reduction in earnings as Pratt & Whitney engines are near the end of life-cycle.
Longer interval between checks
We think SIAEC is going through the cyclical period where customers deferring aircraft checks (i.e. increase interval between checks). The number of ‘C’ checks declined from 37 in 1HFY14 to 34 in 1HFY15 and more significantly for ‘D’ checks, the number dropped from 23 in 1HFY14 to 10 in 1HFY15. The number of ‘A’ checks remained resilient at 192 in 1HFY15 compared to 193 in 1HFY14. Note that ‘D’ checks has the most impact with an estimated revenue of S$3m-S$6m per check. With lower revenue from ACS and high staff costs, SIAEC reported an S$7.4m operating loss for its ACS segment. We expect SIAEC to face this situation for at least the next 12 months, until which, the demand for checks from customers should pick up gradually as their extended interval runs out.
Lower FV; Downgrade to SELL
With disappointing results, expected depressed earnings for the next 12 months, and change in analyst coverage, we cut our FY15 and FY16 PATMI by 28.7% and 18.1% respectively. Hence, we lower our FV from S$4.71 to S$3.80 based on 19.0x blended FY15/16F PER, and downgrade to it SELL.
SIAEC – OCBC
2QFY15 results below expectations
- 2QFY15 PATMI plunged 40.7% YoY
- More aircraft checks deferred
- Downgrade to SELL
Disappointing 2QFY15 results
SIA Engineering Company’s (SIAEC) reported a 3.0% YoY decline in its 2QFY15 revenue to S$285.2m and a 40.7% drop in PATMI to S$42.1m. Its 1HFY15 results were below expectation as its revenue and PATMI formed 47.8% and 34.5% of our FY15 forecasts. SIAEC’s 1HFY15 revenue decreased 0.7% to S$579.3m, due to lower airframe and component overhaul services (ACS) revenue from fewer aircraft checks, partly offset by the higher fleet management programme (FMP) revenue. Its 1HFY15 PATMI declined 31.7% to S$95.6m, on higher subcontract costs and a 36.2% YoY drop in share of profits from associated and JV companies to S$29.1m. SIAEC’s key JV, SAESL (services Rolls-Royce engines) experienced a 30% reduction in works on engine cowls due to improvement modifications that reduced engine shop visits. Its main associate, Eagle Services Asia, also saw reduction in earnings as Pratt & Whitney engines are near the end of life-cycle.
Longer interval between checks
We think SIAEC is going through the cyclical period where customers deferring aircraft checks (i.e. increase interval between checks). The number of ‘C’ checks declined from 37 in 1HFY14 to 34 in 1HFY15 and more significantly for ‘D’ checks, the number dropped from 23 in 1HFY14 to 10 in 1HFY15. The number of ‘A’ checks remained resilient at 192 in 1HFY15 compared to 193 in 1HFY14. Note that ‘D’ checks has the most impact with an estimated revenue of S$3m-S$6m per check. With lower revenue from ACS and high staff costs, SIAEC reported an S$7.4m operating loss for its ACS segment. We expect SIAEC to face this situation for at least the next 12 months, until which, the demand for checks from customers should pick up gradually as their extended interval runs out.
Lower FV; Downgrade to SELL
With disappointing results, expected depressed earnings for the next 12 months, and change in analyst coverage, we cut our FY15 and FY16 PATMI by 28.7% and 18.1% respectively. Hence, we lower our FV from S$4.71 to S$3.80 based on 19.0x blended FY15/16F PER, and downgrade to it SELL.