Stahub – CIMB
No real change in course
StarHub’s 9M14 core net profit largely met expectations, forming 75% of our and consensus full-year forecasts. Service revenue was flat qoq, held back by another quarter of declines for broadband, while EBITDA margin improved due to a higher recognition of NBN grants in the quarter. As expected, a quarterly DPS of S$0.05 was declared. We maintain our Hold rating with an unchanged DCF-based target price of S$4.25 (WACC: 7.1%). Despite a brighter outlook for its mobile business, its broadband business could remain under pressure while the pay TV business lacks growth prospects. We also do not expect StarHub to raise its annual DPS of S$0.20 or pay any special dividends over the next three years due to high capex and spectrum payments.
Broadband ARPU slides further
Broadband revenues fell by 3.5% qoq (-17.4% yoy) in 3Q14, its fifth consecutive quarter of decline. This was driven by a 5.4% drop in ARPU to S$35, its lowest level so far, on the back of intense competition. While management noted that recent competition has centred around higher-speed packages (e.g. 1Gbps for S$49/month), we believe that StarHub’s ARPU could remain under pressure as it defends its higher-end broadband customer base. We forecast ARPU to decline to S$37/32/30 in FY14/15/16.
Weak prepaid offsetting positive postpaid trend
Mobile revenues were largely flat qoq as growth in postpaid was offset by the continued weakness in prepaid, where data usage growth has been insufficient in offsetting the reduced International Direct Dial (IDD) calls and SMS volumes. For postpaid, subscribers grew by 0.9% qoq, while ARPU rose by 1.5% qoq. Subscribers on tiered pricing plans rose by 2% pts qoq to 59%, while users that exceeded their data bundles jumped 4% pts qoq to 22%.
Margins to take a dip in 4Q14 due to higher handset sales
Despite higher handset subsidies in 3Q14, EBITDA margin (on service revenue) rose by 0.6% pts qoq (+0.9% pts yoy). This was only because StarHub recognised higher NBN adoption grants of S$12m in the quarter (2Q14: zero) after receiving regulatory approval. We expect margins to take a dip in 4Q14 on substantially higher handset subsidies due to the full quarter impact of iPhone 6 sales (vs. two weeks in 3Q14). This should bring full-year EBITDA margins (on service revenue) down to our projected 33.1% (9M14: 33.7%).
SIAEC – CIMB
A year of famine
SIE’s 2Q15 net profit of S$42m was below our expectations (S$60m) and consensus (S$68m) due to the weak contribution from JVs and associates that formed 62% of pretax profit. 1H15 net formed 40% of our FY15 forecast. Better engine reliability caused a reduction in engine visits required by its JVs and associates. The maintenance programme is likely to be delayed until CY16, when we expect it to restart with a vengeance. Airframe heavy checks plunged because of similar reasons and cancellations. The only positive is the interim DPS of 6 Scts. We cut FY15-17 EPS by 11-14% for lower contribution from JVs/associates. Accordingly, our target price is lowered to S$4.00, still based on blended P/E and DCF. Maintain Reduce. Weak qoq earnings and margin pressure could be the key de-rating catalyst.
If it ain’t broke, don’t fix it
We believe that SIE is being squeezed by struggling original equipment manufacturers (OEMs). 2Q15 JV contribution was down 30% yoy to S$18.5m, while associates’ contribution fell 52% yoy to S$10.6m. Its main JV, SAEL, which services Rolls-Royce Trent engines saw a 30% reduction in engine repairs, as the newer engines are more reliable. This translates into longer intervals between overhauls, with certain modules being delayed by up to two years. SIE’s associate, Eagle Services, was also negatively affected by lower repairs for the long-suffering Pratt & Whitney, which has been struggling to defend its engine market share.
Airframe division incurred operating loss for the first time
Airframe maintenance revenue dipped 9% yoy from S288m in 1H14 to S$262m in 1H15. Similar to the engine segment, several customers delayed their heavy check maintenance. Only 10 “D” checks were performed in 1H15 versus 24 checks in 1H14. Certain contracts were also cancelled without penalty (for goodwill). High fixed labour costs (50% of airframe costs) resulted in the division posting its first operating loss of S$7.4m in 1H15. Despite the unimpressive Changi airport data, Line Maintenance revenue was stable at S$221m in 1H15, thanks to more light checks during line maintenance.
One-year famine, at the very least
SIE is facing structural issues, with internal pressure (high labour costs) and external (customers delaying maintenance to cut costs). We believe that the stock is unlikely to outperform the market in the next 12 months.
October 2014
Results Announcement
- 15 Oct 14 : SPH (FY14) – EPS 25ct vs 2ct (FY13) ; Div 14ct (Final 8ct + Special 6ct) vs 15ct (2H13)
- 16 Oct 14 : M1 (Q314) – EPS 4.8ct vs 4.3ct (Q313)
- 21 Oct 14 : SGX (Q115) – EPS 7.3ct v 8.63ct (Q114) ; Div 4ct (No Change)
- 31 Oct 14 : SMRT (Q215) – EPS 1.7ct vs 0.9ct (Q214) ; Div 1.5ct vs 1ct (Q214)
- 4 Nov 14 : SIAEC
- 5 Nov 14 : Starhub
- 7 Nov 14 (AM) : STEng
- 7 Nov 14 : HLFin
- 12 Nov 14 : SBSTransit
- 13 Nov 14 (AM) : Singtel
- 13 Nov 14 : ComfortDelgro
- 13 Nov 14 : SATS
STI = 3274.25 (+39.94 ; -2.49 for the Month)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
Hong Leong Fin |
FY13 (Dec) |
15.85 |
12.00 |
$2.600 |
4.615% |
16.40 |
Interim 4ct ; Final 8ct |
|
SGX |
FY14 (Jun) |
30 |
28 |
$7.000 |
4.000% |
23.33 |
Q1, Q2, Q3 4ct ; Q4 4ct +12ct |
|
SingPost |
FY14 (Mar) |
6.746 |
6.25 |
$1.970 |
3.173% |
29.20 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
|
SPH |
FY14 (Aug) |
25 |
21 |
$4.280 |
4.907% |
17.12 |
Interim 7ct ; Final 8ct + Special 6ct |
Note : SGX Added from May-14 ; Q4 Variable Div Depends on FY EPS
Aviation Services
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SATS |
FY14 (Mar) |
16.10 |
13.0 |
$3.100 |
4.194% |
19.25 |
Interim 5ct ; Final 8ct |
|
SIA Engineering |
FY14 (Mar) |
23.88 |
25.0 |
$4.760 |
5.252% |
19.93 |
Interim 7ct ; Final 13ct + Special 5ct |
|
ST Engineering |
FY13 (Dec) |
18.73 |
15.0 |
$3.750 |
4.000% |
20.02 |
Interim 3ct ; Final 4ct + Special 8ct |
Note : SIAEC Special Div is Observed to be Non-Recurring (Depends on Excess Cash)
Transport
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SBSTransit |
FY13 (Dec) |
3.62 |
1.80 |
$1.660 |
1.084% |
45.86 |
Interim 0.9ct ; Final 0.9ct |
|
ComfortDelGro |
FY13 (Dec) |
12.43 |
7.00 |
$2.640 |
2.652% |
21.24 |
Interim 3ct ; Final 4ct |
|
SMRT |
FY14 (Mar) |
4.10 |
2.20 |
$1.490 |
1.477% |
36.34 |
Interim 1.0ct ; Final 1.2ct |
TELCO
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
|
SingTel |
FY14 (Mar) |
22.92 |
16.8 |
$3.780 |
4.444% |
16.49 |
Interim 6.8ct ; Final 10ct |
|
M1 |
FY13 (Dec) |
17.4 |
21 |
$3.490 |
6.017% |
20.06 |
Interim 6.8ct ; Final 7.1ct + Special 7.1ct |
|
StarHub |
FY13 (Dec) |
21.50 |
20 |
$4.130 |
4.843% |
19.21 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
AusNet Services |
2H – Mar14 |
A4.18 (Gross) |
$1.550 |
6.092% |
A$0.90 |
1H14 A4.18ct ; 2H14 A4.18ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.1295) fm Yahoo
NOTES :
- Mkt Price is as on 31-Oct-14
- SMRT : Q214 (Sep14) – Interim 1.5ct
- SPH : 2H14 (Aug) – Final 8ct + Special 6ct ; 1H14 (Feb) – Interim 7ct
- ComfortDelgro : Q214 (Jun) –3.5ct
- ST Engg : 1H14 (Jun) – 4ct
- SBSTransit : Q214 (Jun) – 1.25ct
- HLFin : 1H14 (Jun) – 4ct
- SGX : Q414 (Jun14) – 4ct+ 12ct ; Q314 (Mar14) – 4ct ; Q214 (Dec13) – 4ct ; Q114 (Sep13) – 4ct
- M1 : 1H14 (Jun) – Interim 7ct
- SPAus : FY15 Guidance = A8.36ct Gross
- SPAus : 2H14 (Mar14) – A4.18ct = A1.393ct (Franked) + A2.379ct (Interest – Subject to 10% Tax) + A0.408ct (Capital Returns) ; 1H14 (Sep13) – A4.18ct = A1.393ct (Franked) + A2.396ct (Interest – Subject to 10% Tax) + A0.391ct (Capital Returns)
- SingTel : 2H14 (Mar14) – Interim 10ct ; 1H14 (Sep13) – Interim 6.8ct
- StarHub : Q114 (Mar) – 5ct
- SIAEC : Q414 (Mar14) – Final 13ct + Special 5ct ; Q214 (Sep13) – Interim 7ct
- ST Engg : Dividend Payout Reduced from 90% to 80% for FY13 & Will Be Further Reduced to 75% from FY14
- StarHub : FY14 Div Guidance – 5ct/Q
- SingPost : Q314 (Dec13) – 1.25ct ; Q214 (Sep13) – 1.25ct ; Q114 (Jun13) – 1.25ct
- SATSvcs : 1H14 (Sep13) – Interim 5ct
- SingTel : Div Policy – 60% to 75% of Underlying Net Profit
SPH – OSK DMG
Print Business Loses Its Edge
SPH announced full-year revenue of SGD1.22bn (-2.0% YoY) and PATMI of SGD404.3m (-6.2% YoY), broadly in line with our estimates. We see weakness in its core business as companies switch to online advertising from its traditional advertising platform. We keep our SELL call and SOP-based TP remains at SGD3.57 (14.4% downside), premised at 17.0x FY15 P/E and implying 6.2% FY15 dividend yield.
- Pessimistic outlook for its publishing business. Revenue from SPH’s newspaper and magazine (N&M) segment slid 6.0% YoY to SGD931.7m in FY14 (Aug). This was mainly driven by the decline in its advertising and circulation revenue, which were down 6.8% and 4.9% YoY respectively. We continue to hold a bleak view on its publishing segment as its clients are switching to better and cheaper alternatives to advertise on the internet via social media platforms such as Facebook.
- SPH REIT (SPHREIT SP, NR) provides a strong and stable income stream. The REIT’s portfolio, consisting of Paragon and Clementi Malls, has proven to be resilient as both assets maintain full occupancy rates. Revenue from SPH’s property segment inched up by 3.5% YoY, underpinned by a positive rental reversion of 8.5% and lower property expenses. Moving forward, we think that the portfolio could continue to provide stable support to its core business.
- Seletar Mall a near-term catalyst for its property division. In addition to its REIT’s contributions, the new opening of Seletar Mall – which recorded >90% pre-committed leases – in the next quarter could provide an additional income stream for the business. We think that the suburban mall will be able to attract good-quality tenants as residences within the area are underserved by retailers. (Seletar Mall has c.320,000 residences nearby vs Clementi Mall’s c.200,000)
- Maintain SELL. Despite the expansion in its property division, its core business continues to be a laggard. We maintain our SELL recommendation, while our SOP-based TP remains unchanged at SGD3.57, implying a 17.0x FY15 P/E and a 6.2% FY15 dividend yield.
SingPost – OCBC
CAPITALISING ON REGIONAL E-COMMERCE LOGISTICS
- E-Commerce growth beyond Alibaba
- Seeking to be a main stakeholder in value chain
- Raise growth rate assumptions
Developing a fully integrated eCommerce logistics hub in Singapore
Singapore Post (SingPost) announced last evening that it will be developing a fully integrated regional eCommerce logistics hub to cater to its expanding ecommerce logistics business and the fast-growing ecommerce market. The three storey hub in Tampines LogisPark will be the first of its kind in SE Asia, equipped with state-of-the-art technology. Scheduled to be fully operational in 2H16, the estimated development cost is S$182m, and includes lease of land, construction costs and equipment costs. This will be funded internally from cash.
Capitalising on online retail and logistics solutions
There is room for Singapore’s e-Commerce scene to grow, as the country’s e-commerce sale volume as compared to the total retail market size was remains relatively low. Singapore’s rising importance as a logistics hub is also highlighted by recent investments in warehouse and distribution facilities by DHL and Menlo Logistics. In addition, SingPost, being a postal operator, may be already sitting on a huge amount of data waiting to be monetized. The partnership between postal operators and eretailers may thus extend beyond the posts’ role of enablers of e-Commerce to supporting the e-retailers to expand and grow by analyzing, translating and interpreting data.
Raising growth rate assumptions and fair value estimate
In our 3-stage DCF model, we have forecasted earnings growth of 7-9% for FY15-16, and 16-17% in FY17-18 as SingPost builds up its e-Commerce capabilities and reputation. However, we have also assumed higher working capital requirements and capital expenditure, resulting in a 5-7% growth in free cash flow to equity (FCFE). For FY19-FY23, we increase our FCFE growth rate assumption from 5% to 9%, which is justifiable given 1) the significant growth potential of e-Commerce sales in Singapore and the region, 2) the accompanying rise in logistics services that are required to support this growth 3) the likelihood of SingPost directing its huge cash pile to earnings-accretive investments in the next few years. With this, our fair value estimate rises from S$1.78 to S$2.09. Upgrade to BUY.