Singpost – DBSV
Reap 3.5% yield till it takes off
- Net profit of S$39.2m (+5% y-o-y) was in line; excluding one-off gains, net profit would have been stable at S$36.2m. Interim dividend of 1.25 Scts was in line.
- Net profit was impacted by S$4m developmental costs for e-commerce and also a temporary increase in labour costs till sorting machine is upgraded by the end of 2014.
- Alibaba did not contribute much but discussions are underway as SPOST is hot on the heels of this opportunity
- BUY with S$2.00 TP based on DCF (WACC 6.3%, terminal growth 2%). Three key medium term catalysts are in place
Highlights
Group revenue was up 5% y-o-y, benefitting from ecommerce. Mail revenue grew 7% y-o-y on the back of growth in international mail and stable domestic mail from e-commerce volumes. Without e-commerce volumes, international mail would have hardly grown while domestic mail would have declined. Logistics grew 4% y-o-y despite restructuring at Quantium Solutions. Net profit was boosted by a one-off gain of ~S$3m from property sale. In discussions with Alibaba on international e-commerce logistics platform. SPOST wants to tap on e-commerce opportunities in Southeast Asia and beyond but is still negotiating with Alibaba on this front.
Our View
Upgrade of sorting machine at S$45m capex towards the end of 2014 should reduce costs. The machine will be able to sort more mails and packages and increase the throughput. However, during the transition, SPOST has hired 70 additional postmen.
Expect double-digit growth in e-commerce logistics. However, this should be partially offset by a 1-4% decline in the domestic mail segment. Given that e-commerce accounted for 26% of total revenue in FY14, one may expect a high single-digit to low double digit growth in group revenue.
Recommendation
SPOST should command a premium valuation for three reasons. Firstly, assuming that SPOST makes S$300m worth of acquisitions at 12-15x PE, it may add S$20-25m or 15-20% to our FY16F earnings. Secondly, SPOST is incurring ~S$15m developmental expenses each year in mainly hiring and training people, which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that. Thirdly, higher volumes from Alibaba could surprise in FY16F as we have assumed only ~S$50m worth of business from Alibaba in our forecasts. BUY for its 3.5% yield, while awaiting its price ascent.
Starhub – Maybank Kim Eng
Mobile star dimming
- 2Q14 results below, revenue guidance cut. Downgrade our least preferred telco to HOLD from BUY. TP cut to SGD4.44 (DCF, WACC 7.8%).
- Sharp slowdown in mobile revenue growth as fall in voice/SMS offset data growth.
- Broadband’s revenue free fall unlikely to end soon.
Below expectations
2Q14 profit fell 6% YoY as service revenue slipped 2% on lower prepaid mobile and broadband revenue, and lower NBN adoption grants. Of greater concern was the sharp slowdown in its postpaid mobile revenue growth to 0.8% YoY (vs M1’s +5.4%). We cut FY14E EPS by 4% to assume no YoY growth, as StarHub slashed guidance from low-single-digit growth to flat revenue. It maintained its EBITDA margin guidance of 32% (1H14: 33%) as it expects the new iPhone to depress 2H14 margins. Downgrade to HOLD with reduced DCF-derived TP of SGD4.44 (WACC 7.8%, LTG 1%).
Almost no growth in mobile revenue
While StarHub’s bundle-sharing SharePlus plans also diluted its postpaid ARPU to SGD68 (2Q13: SGD72), the main reason for its depressed mobile revenue appears to be sharply declining voice revenue (-12% YoY). This offset strong data monetisation (tiered subs +25 ppt YoY to 57%. In contrast, M1’s voice decline was less steep (-5% YoY) while its data monetisation rate was stronger (+32 ppt to 58%). OTT apps are hurting the whole industry but StarHub seems to be struggling more to stem the decline in its traditional revenue streams.
Broadband pain to be prolonged
2Q14 broadband revenue also fell sharply by 17% YoY as ARPU declined further to SGD37 (2Q13: SGD45). This is unlikely to end soon as StarHub intends to build up its subscriber base further as part of its home-hubbing strategy.
SIAEC – Maybank Kim Eng
Wings clipped; Cut to SELL
- Downgrade to SELL with a revised TP of SGD4.20, based on 20x FY3/15E P/E, as short-term outlook turns challenging.
- Sinister signposts: A decline in heavy maintenance workload after recent expansion in the Philippines, and a persistent weakness in shop visits for its Rolls-Royce engine shops.
- Management has turned bearish on its outlook.
Yet another disappointment
We see various challenging trends in this set of results. Revenue was little changed (+1.6% YoY) with higher fleet management sales offset by lower heavy maintenance workload. EBIT margin contracted to merely 7.0% (lowest since 1QFY3/10) as subcontract cost rose 4.5% YoY. Share of profits of associates and JVs fell 28.8% YoY to SGD30.6m due to a 37.8% fall in contribution from the engine repair and overhaul centres. Management turned bearish on its outlook, citing challenges from decline in heavy checks, reduction in engine shop visits and rising business costs.
Grounded by short-term headwinds
We see three headwinds to weigh down on FY3/15E earnings:
- New hangar facilities in the Philippines (Hangar 2: Apr 2013, Hangar 3: under construction) are coming on-stream at a time when heavy maintenance workload is slowing down.
- Persistent weakness in shop visits for its Rolls-Royce engine shops (FY3/14: 41% of net income).
- The scale-back in capacity expansion by regional airlines looks set to reduce overall maintenance workload.
We therefore cut our FY3/15E-17E by 15-16%. In our view, valuation looks expensive against cyclical earnings contraction. Downgrade to SELL with a revised TP of SGD4.20 (from SGD5.75), based on 20x FY3/15E P/E (from 23x), equivalent to 1SD above its historical mean; justified by its positive long-term outlook.
SMRT – OCBC
Improvement better-than-expected
- 1QFY15 PATMI up 36.8% YoY
- Fare business’ operating losses narrowed
- Raise FV but maintain HOLD
1QFY15 earnings exceeded expectations
SMRT reported a decent set of 1QFY15 results which beat ours and the street’s expectations. This was achieved despite a S$1.6m fine by LTA over four train service
disruptions. PATMI jumped 36.8% YoY to S$22.4m on the back of a 4.3% increase in revenue to S$297.1m. The former constituted 31.8% of our FY15 forecast and 30.2% of Bloomberg consensus. Both SMRT’s
Fare business and Non-fare business recorded an improvement in operational performance. Operating losses narrowed from S$5.5m in 1QFY14 to S$1.1m in 1QFY15 for the former, boosted by higher ridership and average fares as well as productivity gains; while operating profits climbed 17.4% YoY to S$29.9m for its Non-fare segment.
Yet to reach a mutual agreement with LTA
Singapore’s Transport Minister Mr. Lui Tuck Yew recently commented that there was still a “wide gap between SMRT’s expectations and LTA’s position” with regards to the new rail financing model. As expected, management remained tight-lipped on this issue during the conference call, but highlighted that it hopes to reach a win-win situation with the authorities. According to LTA, SMRT also has ~S$2b of financial obligations from 2014 to 2019 under the existing financing framework. We believe this situation would change once LTA implements a new rail financing model to enhance the sustainability of the transport sector. The recent introduction of the “Government contracting model” for buses is proof that the government is committed to achieving this goal.
Maintain HOLD
We bump up our FY15 and FY16 PATMI projections by 18.8% and 8.8%, respectively. We also raise our terminal growth rate assumption from 1.5% to 2.0% to take into account the positive long-term prospects of SMRT. Correspondingly, our DDM-derived fair value estimate increases from S$1.40 to S$1.65. While we like SMRT’s solid 1QFY15 operational performance, its
share price has already appreciated 34.9% YTD. Moreover, there is still uncertainty over the timeframe and details of LTA’s rail financing framework implementation. This may limit SMRT’s near-term share price upside potential, in our view. Hence, we maintain our HOLD rating on SMRT.
SMRT – CIMB
Train kept a-rollin’
SMRT’s 1QFY15 earnings are above our expectation, forming 32% of our previous full-year forecast. The deviation was primarily due to better-than expected margins arising from moderate operating costs. The highlight of the results is the sustainability of its fare business. We raise our FY15-17 EPS forecasts by 6-8% to incorporate its increased earnings sensitivity to improving ridership and restrained costs. This lifts our DCF-based target
price (WACC 7%). Other potential re-rating catalysts are better earnings from its cost-control measures. A rail financing model, if come about early, could add euphoria. We reiterate our Add rating.
Results outperform
The 1QFY15 PATMI of S$22m (+37% yoy) is deemed to be above expectation. Strong revenue was recorded in almost all the business segments. With the recent fare adjustments and continued rise in ridership, earnings, which bottomed out in the previous quarter, have turned sharply around. The trend of narrowing losses in its bus business and growth in its train business looks sustainable. The 1QFY15 results are the best in seven quarters of reporting. Staff expenses remained the largest cost component (40% of revenue), though wage adjustments and headcount increases have moderated.
Improving costs environment
Operating costs moderation is also key to this set of results, as every operating cost items were pegged back. The group’s current net gearing stands at 65%. We believe this will come down progressively over the next two financial years as the group manages its capex programme via internal funding and external credit lines. Note that the capex of S$94m spent in 1Q15 is not reflective of the S$550m targeted forFY15. According to management, the sports Hub space is now more than 80% leased out, with progressive openings scheduled for the months to come. This segment falls into the other services segment.
Reiterate Add
The new management has turned the company around faster than expected as it targeted costs with greater impact on earnings. In addition, a new rail financing framework is currently under discussion, with the earlier-than expected move on the bus model serving as a prelude to the rail model. Add.