SGX – Phillip
Strong derivatives volume marred by record low SDAV
- Securities Daily Average Value (SDAV) hit a historical all-time low of S$0.97b for 1Q15, a decrease of 14% q-q and 27% y-y based on SGX figures. We are seeing yet another quarter of supressed trade volumes and we believe this will continue to stretch into a seasonally weak 2Q.
- Factoring in 1Q15’s lower SDAV, we trimmed our FY15 forecasted SDAV, leading us to revise our FY15 EPS downwards slightly.
- Derivatives business had a strong quarter with Derivatives Daily Average Volume (DDAV) growing 9.4% q-q to 0.45 million contracts and 7.7% y-y. This was led by exceptional volumes from the FTSE China A50 contracts which saw a 60.5% growth q-q and more than twice the volume y-y.
- In the long run, we are still encouraged by the structural changes being introduced, namely the MM and LP programmes and board lot size reduction, helping to stimulate growth in trade volumes and improving liquidity.
- Upgrade to “Accumulate” with revised TP of S$7.30, based on slightly revised EPS and PE multiple of 23X FY15 earnings
What is the news?
SGX Ltd will be announcing its 1Q15 results on 21 Oct 2014. Based on monthly statistics recently released by SGX, 1Q15’s SDAV declined 14% q-q to S$0.97 billion. DDAV grew in 1Q15, increasing 9.4% q-q to 0.45 million contracts.
How do we view this?
We expect Securities Revenue to decline as SDAV has dipped by 14% q-q but the impact should be cushioned by higher average clearing fees with the removal of capped trades (S$600). Derivatives Revenue should be stronger this quarter with the 9.4% q-q growth in DDAV. This was a record quarter for the FTSE China A50 Index Futures (+60.5%) which was the main driver for overall volume expansion. The A50 contracts now constitute 41% of total equity index futures volume as compared to 29% in the previous quarter. We also note that albeit the minimal impact on overall derivatives revenue, forex futures volume are gradually taking off, especially so for the INR/USD futures (5X q-q). With RMB forex futures coming in as well (20 Oct 14), it could be a sound compliment to RMB-denominated investment products. Listing revenue will be another positive this quarter given the stronger pipeline of IPOs (S$1.9b raised in 1Q15), which will help to alleviate the weaker securities revenue.
Depressed securities activity levels continue to pose as a near-term drag for SGX. A weak start to FY15 and an upcoming seasonally weaker 2Q has led us to trim our FY15 projected SDAV. The Derivatives business remains a bright spark and key growth driver in the medium to long term and we estimate derivatives revenue could overtake securities revenue this year. Key re-rating catalyst will be a sustained pick-up in market volumes from external macro drivers and the success of the SGX introduced measures for boosting liquidity, IPOs and take-off of new derivatives products launched.
Investment Actions?
We trim our FY15/FY16 EPS estimates slightly by 3%/5%. Dividend yield is currently attractive at 4.4%. Based on a multiple of 23X FY15 earnings, our target price is revised to S$7.30 and we upgrade our rating to “Accumulate”.
SingPost – OCBC
Capitalising on regional e-commerce logistics
- e-Commerce growth beyond Alibaba
- Seeking to be a main stakeholder in the 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 e-retailers 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.
M1 – OSK DMG
Still ‘Appletizing’
We maintain BUY on M1, with FV adjusted to SGD4.20 (WACC: 7%, terminal growth: 1.5%) from SGD4.30, a 16% upside. Its re-rating catalysts are: i) continued revenue market share gains, ii) stronger take-up of fiber plans and iii) better data monetisation efforts. The fair value accounting on the iPhone should see M1’s service EBITDA margin bucking the trend in 4Q14, a typically strong quarter for handset sales.
- An indirect ‘beneficiary’ of the iPhone. The overwhelming demand for the recently launched iPhone 6 (IP6) and tight supplies for the larger screen iPhone 6+ (IP6+) in Singapore suggests a likely shift in the Android dominated handset sales mix for 4Q14/1QFY15. This should indirectly benefit M1 as it books upfront revenue from iPhone contracts to partially offset the device subsidy (fair value accounting), which should result in a smaller EBITDA impact vs its larger peers. M1’s EBITDA margin as a percentage of service revenue grew 1-6 ppts q-o-q in 4Q12 and 4Q13 during the launch of the previous iPhone 5 (IP5) and iPhone 5s (IP5s) respectively.
- Firing the latest fiber salvo. M1 recently slashed the price of its 1Gbps fiber plan by 50% to SGD49.00/month, marginally undercutting a similar plan offered by MyRepublic. While there are concerns that the latest move could lead to further value destruction in the fixed broadband space via a fresh round of price competition, we view this as a tactical response to strengthen M1’s triple-play bundling proposition and an attempt to narrow the gap with its larger peers, which are aggressively locking-in customers on multiple services. Being the smallest of the Tier- 1 fiber service provider, M1 stands to gain somewhat from competition with no legacy broadband revenue to cannibalise. Its home-bundling proposition should be catalysed by the implementation of cross-carriage, which should allow pay-TV subscribers to access premium content.
- Data monetisation. We expect M1 to better monetise data going forward with the recent introduction of fresh 4G plans and higher data consumption, resulting in more customers exceeding their bundled data allowances. Subscribers on M1’s previous tiered plans will also likely be subjected to a 4G VAS surcharge after 31 December, providing some average revenue per user (ARPU) uplift.
ComfortDelgro – OCBC
DTL 2 to open ahead of schedule
- Delay in DTL 2 shortened by a few months
- DTL project likely to breakeven earlier
- Maintain BUY
Good news on DTL 2’s schedule
Singapore Transport Minister Lui Tuck Yew announced on 29-Sep that the Downtown Line 2 (DTL 2) mass rapid transit (MRT) line will be opened in 1Q16, a few months ahead of schedule. The original schedule was delayed from end-2015 to mid-2016 after one of its main contractors, Alpine Bau, went into insolvency last year. He added that additional manpower as well as innovative work processes helped accelerate the project and all the contractors will continue to do so in a bid to try to bring forward the opening to even earlier than 1Q16.
Expect DTL project to breakeven earlier
As at 2QFY14, CDG recorded loss of S$6.2m from its Downtown Line 1 (DTL 1) operations but we estimate CDG to breakeven on its start-up costs in the period between phase 2 and phase 3 of the whole DTL project. With the opening of DTL 2 brought forward by a few months and possibly even earlier, we believe this is good for CDG as this would also logically allow it to breakeven earlier as well. Beyond its breakeven point, we expect CDG to be able to cover the licensing fee charged by LTA through revenue generated from DTL and hence see meaningful income contribution. Furthermore, we believe ridership will improve significantly given that the DTL 2 comprises 12 stations and one depot, including four interchange stations, where we expect traffic flow to increase considerably. We also believe the advertisement and rental business segments, which offer higher margins, to further boost revenue and profitability.
Maintain BUY
With the impact of DTL already factored in our financial model previously, we retain our forecasts since the opening of DTL 2 continues to be in FY16. Although the estimated total licensing fee of ~S$1.6b over the 19-year operating lease should have started in 2013 when DTL 1 commenced, we expect to see significant increase only upon opening of the full DTL in 2017 since the
variable component of the fee depends on ridership. With the slight retreat in share price since our last update in Aug-14, we maintain BUY with an unchanged fair value estimate of S$2.92.
September 2014
STI = 3276.74 (-12.98 / -50.35 for the Month)
|
Stock |
Period |
EPS cts |
DPS cts |
Mkt |
Yield |
PE |
Div Breakdown |
||||
|
Hong Leong Fin |
FY13 (Dec) |
15.85 |
12.00 |
$2.670 |
4.494% |
16.85 |
Interim 4ct ; Final 8ct |
||||
|
SGX |
FY14 (Jun) |
30 |
28 |
$7.230 |
3.873% |
24.10 |
Q1, Q2, Q3 4ct ; Q4 4ct +12ct |
||||
|
SingPost |
FY14 (Mar) |
6.746 |
6.25 |
$1.795 |
3.482% |
26.61 |
Q1, Q2, Q3 1.25ct ; Q4 2.5ct |
||||
|
SPH |
FY13 (Aug) |
27 |
22.0 |
$4.200 |
5.238% |
15.56 |
Interim 7ct ; Final 8ct + Special 7ct |
||||
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 |
$3.060 |
4.248% |
19.01 |
Interim 5ct ; Final 8ct |
|
SIA Engineering |
FY14 (Mar) |
23.88 |
25.0 |
$4.610 |
5.423% |
19.30 |
Interim 7ct ; Final 13ct + Special 5ct |
|
ST Engineering |
FY13 (Dec) |
18.73 |
15.0 |
$3.650 |
4.110% |
19.49 |
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 |
$1.700 |
1.059% |
46.96 |
Interim 0.9ct ; Final 0.9ct |
|
ComfortDelGro |
FY13 (Dec) |
12.43 |
7.00 |
$2.400 |
2.917% |
19.31 |
Interim 3ct ; Final 4ct |
|
SMRT |
FY14 (Mar) |
4.10 |
2.20 |
$1.550 |
1.419% |
37.80 |
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 |
$3.800 |
4.421% |
16.58 |
Interim 6.8ct ; Final 10ct |
|
M1 |
FY13 (Dec) |
17.4 |
21 |
$3.560 |
5.899% |
20.46 |
Interim 6.8ct ; Final 7.1ct + Special 7.1ct |
|
StarHub |
FY13 (Dec) |
21.50 |
20 |
$4.120 |
4.854% |
19.16 |
Q1 5ct ; Q2 5ct ; Q3 5ct ; Q4 5ct |
Infrastructure
|
Stock |
Period |
DPS cts |
Mkt |
Yield |
NAV |
Div Breakdown |
|
SPAus |
2H – Mar14 |
A4.18 (Gross) |
$1.510 |
6.251% |
A$0.90 |
1H14 A4.18ct ; 2H14 A4.18ct |
* SPAus DPU in A$. Yield is Calculated Using Latest Exchange Rate (1.1290) fm Yahoo
NOTES :
- Mkt Price is as on 30-Sep-14
- 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
- SMRT : Q414 (Mar14) – Interim 1.2ct ; Q214 (Sep13) – Interim 1ct
- 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
- SPH : 2H13 (Aug) – Final 8ct + Special 7ct ; 1H13 (Feb) – Interim 7ct
SingTel : Div Policy – 60% to 75% of Underlying Net Profit