SGX – CIMB
Disappointing derivatives
SGX's 4QFY14 net profit is expected to be down slightly qoq on seasonally higher staff costs. We believe that its bright spot will be securities clearing fees, as securities ADVT picked up marginally in the last two quarters, while its removal of the cap on institutional clearing fees should increase SGX's effective securities clearing rate starting Jun. The disappointment this quarter is likely to show up in derivatives, as growth in traded volumes has come off with lower interest in SGX's two key products: Nikkei 225 and China A50 index futures. In view of its subdued trading volumes, we maintain our Hold rating and cut our FY14-16 EPS by 3-6% for lower derivatives volumes. Our DDM-based target price falls to S$7.43 accordingly (discount rate 9.5%).
What Happened
We expect SGX to report 4Q net profit of S$73.1m (-3.6% qoq, -21.6% yoy) on 31 Aug. We expect the qoq fall to be driven by lower derivatives clearing fees (S$50.3m, -3.7% qoq) and seasonally higher staff costs (S$36.7m, +19.1% qoq), partially countered by higher securities clearing fees (S$42.6m, +3.1% qoq).
What We Think
Higher effective securities clearing rate. Securities average daily value traded (ADVT) rose 3.6% qoq to S$1.1bn, as trading picked up in Apr-May but died down in Jun during the World Cup season (Figures 2-3). SGX also rolled out a new securities clearing fee structure on 1 Jun, which lowers its clearing rate from 4bp to 3.25bp of contract values. At the same time, it removed its cap of S$600 on trades above S$1.5m. We believe that this will raise its effective clearing rate from 5.9bp in FY13 to 6.5bp, starting Jun.
Derivatives disappoint. Derivatives traded volume fell 4.2% qoq to 25m contracts, as interest in equity index futures fell. The main culprits were the Nikkei 225 (-26.5% qoq) and China A50 (-6.0% qoq) index futures. New products added (MSCI India, Indonesia, Philippines and Thailand) are gaining traction but only make up 0.2% of its total equity index futures traded volume.
What You Should Do
Hold for now. We believe that trading volumes will remain subdued in the short term. It remains to be seen if its lower securities clearing fees can encourage more retail participation. We estimate that a 10% rise in securities ADVT from our current estimate of S$1.26bn would result in 7% upside to our FY15 earnings forecast.
SATS – CIMB
Subdued operations
At 22% of our FY15 numbers, 1QFY3/15 core profit of S$43m (-9% yoy) was broadly in line with our expectations and consensus. Management blamed the tragedies of MH370 and the political unrest in Thailand for the weak Changi operating data. Margin strain continued despite SATS’s efforts to reduce its headcount. Overall profits were lifted by lower-than-expected taxes. We keep Reduce as we think that valuation is stretched at 17x CY15, against muted 8% growth and downside risks from potential for further margin contraction. We maintain our target price, still based on 16x CY15 P/E (5-year mean).
Operating data nothing to shout about
TKF contribution was weaker-than-expected as revenue dropped 7% qoq and 9% yoy to S$59m. The lower revenue was mainly due to weaker utilisation in Narita kitchen slots (Yen/S$ was relatively stable from Mar 14 to Jun 14). Flights handled rose 2.5% yoy to 33,170 units in 1Q15 due to the increase in LCCs volume, but the number of passengers handled was muted at 10.7m as airlines’ load factors remained weak. Unit meals volume was stagnant at 5.1m – a sustained weakness due to Qantas flight withdrawals.
Margin pressure is here to stay
EBITDA margin shrank to 12.8% from 14% in 4Q14 and 1Q14 despite SATS’s efforts to reduce its headcount during the quarter. Actual quantum was undisclosed but SATS had 14,611 staff as of end-FY14. 1Q15 staff costs rose 2% yoy to S$204m, accounting for about 51% of its operating costs (50% in 1Q14). Margin improvement could take multiple years, according to the management. Associates’ contribution was lower-than-expected due to weaker cargo volumes in 1) greater China on slower growth and 2) Indonesia due to the elections.
Benefits from the growing Asian aviation theme? Not soon
While we believe that SATS would benefit from the growth in Asian travellers, we think that this could be a long-term (5-10 year) story. Contributions from non-aviation themes such as the Singapore Sports Hub and Marina Bay Cruise Centres are likely to be relatively immaterial in the medium term. We would look for buying opportunity if 1) the margin pressure eases or 2) the share price weakens or 3) Changi Airport reports more positive operating data.
M1 – OCBC
HOLD with new S$3.37 FV
- 1H14 NPAT met 52% of FY
- Interim 7c dividend
- Mobile segment holding up well
2Q14 results mostly in line
M1 Ltd reported its 2Q14 results last evening, with revenue easing 2.0% YoY (down 0.2% QoQ) to S$239.7m, mainly due to lower handset sales (down 17.5% YoY and 15.3% QoQ) and international call revenue (down 19.9% YoY and 1.4% QoQ). Mobile revenue remained strong, up 3.4% YoY and 2.5% QoQ at S$167.9m, driven by post-paid subscriber growth (+2.9% YoY and 0.9% QoQ) and higher data usage (monthly post-paid ARPU +3.5% YoY and 0.7% QoQ at S$55.5). As a result of lower operating expenses (down 6.0% YoY and 1.0% QoQ), net profit grew 12.2% YoY and 2.7% QoQ to S$39.2m. 1H14 revenue though fell 1.6% to S$479.8m, meeting 47% of our full-year forecast, net profit rose 8.2% to S$86.7m, or 52% of our FY14 estimate. M1 also declared an interim dividend of S$0.07/share, versus S$0.068 last year.
Keeps moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage. M1 managed to increase the number of customers on tiered pricing plans from 54% in 1Q14 to 58% in the quarter, with a higher number of them (20% versus 16% in 1Q14) exceeding their data bundles. Nevertheless, management believes that the number of subscribers on tiered plans is likely to stabilize around 65%. Separately, M1 also saw its fixed services’ ARPU stabilizing around S$41.9/month (+0.5% QoQ), which should continue to hold up as it has ended its promotion of giving away 3-6 months of free subscription. Still, competition may continue to remain intense. Last but not least, M1 has kept its S$130m capex guidance due to ongoing upgrades to its network to LTE-Advanced.
New S$3.37 fair value
As the results were mostly in line, we opt not to change our estimates. However, we are improving our DCF-based fair value from S$3.30 to S$3.37, underpinned by a reduction in the risk-free rate from 2.5% to 2.3% (reflecting the fall in SGS 10-year bond yields). But given the limited upside, we maintain HOLD.
M1 – OCBC
HOLD with new S$3.37 FV
- 1H14 NPAT met 52% of FY
- Interim 7c dividend
- Mobile segment holding up well
2Q14 results mostly in line
M1 Ltd reported its 2Q14 results last evening, with revenue easing 2.0% YoY (down 0.2% QoQ) to S$239.7m, mainly due to lower handset sales (down 17.5% YoY and 15.3% QoQ) and international call revenue (down 19.9% YoY and 1.4% QoQ). Mobile revenue remained strong, up 3.4% YoY and 2.5% QoQ at S$167.9m, driven by post-paid subscriber growth (+2.9% YoY and 0.9% QoQ) and higher data usage (monthly post-paid ARPU +3.5% YoY and 0.7% QoQ at S$55.5). As a result of lower operating expenses (down 6.0% YoY and 1.0% QoQ), net profit grew 12.2% YoY and 2.7% QoQ to S$39.2m. 1H14 revenue though fell 1.6% to S$479.8m, meeting 47% of our full-year forecast, net profit rose 8.2% to S$86.7m, or 52% of our FY14 estimate. M1 also declared an interim dividend of S$0.07/share, versus S$0.068 last year.
Keeps moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage. M1 managed to increase the number of customers on tiered pricing plans from 54% in 1Q14 to 58% in the quarter, with a higher number of them (20% versus 16% in 1Q14) exceeding their data bundles. Nevertheless, management believes that the number of subscribers on tiered plans is likely to stabilize around 65%. Separately, M1 also saw its fixed services’ ARPU stabilizing around S$41.9/month (+0.5% QoQ), which should continue to hold up as it has ended its promotion of giving away 3-6 months of free subscription. Still, competition may continue to remain intense. Last but not least, M1 has kept its S$130m capex guidance due to ongoing upgrades to its network to LTE-Advanced.
New S$3.37 fair value
As the results were mostly in line, we opt not to change our estimates. However, we are improving our DCF-based fair value from S$3.30 to S$3.37, underpinned by a reduction in the risk-free rate from 2.5% to 2.3% (reflecting the fall in SGS 10-year bond yields). But given the limited upside, we maintain HOLD.
SPH – OCBC
Impacted by absence of fair value gains
- PATMI
hit by absence of fair value gains
- Ad outlook remains difficult
- Stable performances from malls
PATMI decline due to absence of fair value gains
3QFY14 PATMI declined a dramatic 52.2% YoY mostly due to the absence of fair value gains recognized last year from the REIT spin-off. Operating profit for the quarter, however, increased 7.5% YoY as the group contained operating costs effectively and also benefited from the absence of an S$15.6m impairment charge taken in the corresponding period last year. Overall, we judge the latest quarter to be mostly within expectations and YTD operating profit now cumulates to S$268.8m, which constitutes 83.3% of our forecast for the year. We opt to tweak our operating profit forecast for FY14 up by 4.0% to S$335.6m to account for the marginally lower “other operating expenses‟ item year-to-date.
Ad revenues outlook remains challenging
In terms of the topline, 3QFY14 revenues dipped 4.9% YoY to S$309.7m as core newspaper and magazine revenues decreased S$19.7m. We continue to see a difficult outlook for print ads, with display and classified revenues in 3QFY14 falling 9.8% and 7.8% YoY, respectively. Given headwinds in the domestic residential sector (a key contributor to ad revenues) and persistent competition from a structural shift to new media channels, we believe this print ad downtrend is unlikely to be reversed over the nearer term. Newsprint prices remained stable at S$607/mt in 3QF14, versus S$611/mt in 2QFY14, while YTD staff costs increased 7.1% YoY to S$285.6m. Staff headcount as at end May-14 remained mostly stable at 4,242 versus 4,274 as at end May-13.
Stable performance from the property segment
Performance from the group‟s property segment remained firm, with revenues inching up 1.6% YoY to S$51.0m in 3QFY14 as higher rental income was derived from both Paragon and The Clementi Mall. YTD operating profit for the property segment, before finance costs and fair value gains, is
Stable performance from the property segment
Performance from the group‟s property segment remained firm, with revenues inching up 1.6% YoY to S$51.0m in 3QFY14 as higher rental income was derived from both Paragon and The Clementi Mall. YTD operating profit for the property segment, before finance costs and fair value gains, is mostly flat YoY at S$110.7m. We also understand the Seletar Mall is on target to complete by Dec-14. Maintain HOLD on SPH with an unchanged fair value estimate of S$4.13.