SingTel – MayBank Kim Eng
A Shin deal has to make sense
- That SingTel would want to buy a stake in Shin Corp from Temasek does not make any sense that we can see.
- The telco already has all it needs; more exposure to Thailand would raise political risk and strain its balance sheet.
- But if the deal happens at the reported price, it would be a negative for SingTel. Maintain HOLD.
What’s New
Reuters reported yesterday that Temasek Holdings may sell its 41.6% stake in Thailand’s Shin Corporation (renamed Intouch PLC), with SingTel named as a potential bidder. The value of the stake, at the current market price, is SGD3.9b or USD3.1b.
What’s Our View
Our initial reaction is that it does not make sense, or at least none that we can visibly see, for SingTel to buy Shin. But should it happen at the reported price, this may be negative for SingTel.
First, SingTel already has a sizeable stake in AIS. SingTel already has a direct exposure to Thailand via a 23.3% stake in the country’s largest mobile telco, Advanced Information Services (AIS). We believe SingTel is primarily interested in AIS’s mobile telecom business. AIS, which has a market share of 44% in Thailand, is Shin’s crown jewel that contributes almost all of its profits.
Second, it raises the political risk too much. Taking a substantial stake in Shin will mean SingTel’s exposure to Thailand’s political risks may be too much for our liking. If SingTel were to pay SGD3.9b (USD3.1b) for Temasek’s stake, its investment in Thailand will exceed SGD5b, making the country its biggest exposure to any associate market, bigger than India and Indonesia.
Third, gearing would explode. SingTel’s net debt/EBITDA is already 1.0x. Adding another SGD3.9b in debt would raise it to 1.5x (or 2.2x if associates’ contribution is removed from the calculation to be consistent with StarHub and M1).
SingTel – MayBank Kim Eng
A Shin deal has to make sense
- That SingTel would want to buy a stake in Shin Corp from Temasek does not make any sense that we can see.
- The telco already has all it needs; more exposure to Thailand would raise political risk and strain its balance sheet.
- But if the deal happens at the reported price, it would be a negative for SingTel. Maintain HOLD.
What’s New
Reuters reported yesterday that Temasek Holdings may sell its 41.6% stake in Thailand’s Shin Corporation (renamed Intouch PLC), with SingTel named as a potential bidder. The value of the stake, at the current market price, is SGD3.9b or USD3.1b.
What’s Our View
Our initial reaction is that it does not make sense, or at least none that we can visibly see, for SingTel to buy Shin. But should it happen at the reported price, this may be negative for SingTel.
First, SingTel already has a sizeable stake in AIS. SingTel already has a direct exposure to Thailand via a 23.3% stake in the country’s largest mobile telco, Advanced Information Services (AIS). We believe SingTel is primarily interested in AIS’s mobile telecom business. AIS, which has a market share of 44% in Thailand, is Shin’s crown jewel that contributes almost all of its profits.
Second, it raises the political risk too much. Taking a substantial stake in Shin will mean SingTel’s exposure to Thailand’s political risks may be too much for our liking. If SingTel were to pay SGD3.9b (USD3.1b) for Temasek’s stake, its investment in Thailand will exceed SGD5b, making the country its biggest exposure to any associate market, bigger than India and Indonesia.
Third, gearing would explode. SingTel’s net debt/EBITDA is already 1.0x. Adding another SGD3.9b in debt would raise it to 1.5x (or 2.2x if associates’ contribution is removed from the calculation to be consistent with StarHub and M1).
ComfortDelgro – DBSV
Another record year
- Record 4Q/FY13 profits within expectations
- Dividend payout inched up to 56.5% with 4 Scts final DPS (FY13: 7Scts vs FY12: 6.4 Scts)
- Healthy balance sheet to pursue growth via M&As; medium term target of 60% overseas contribution
- Steady profile; maintain BUY rating and S$2.19 TP
4Q13 results in line. 4Q13 net profit inched up 4% y-o-y to S$59.9m, taking FY13 net profit to a record S$263m (+6% yo-y), despite cost challenges, particularly in Singapore. 4Q revenue grew 9.5% y-o-y driven by all segments except Automotive Engineering. However, EBIT margin dipped 1ppt to 9.6% on higher operating expenses (+10.7%), largely staff costs (+17.7%), fuel & electricity (+21.1%), but there were partly offset by lower materials & consumables costs (-10%).
Higher dividend payout. The Group declared 4 Scts DPS in the quarter, taking full year dividends to 7 Scts. This implies 56.5% payout (FY12: 6.4 Scts, 54.2% payout).
Healthy balance sheet to pursue growth. The Group is in net cash position which means it has headroom to pursue growth and/or raise dividend payouts. Either option could be a share price catalyst. Management has a medium term (5-7 years) target to increase overseas profit contribution to 60%, from 48% currently; we believe the Group would achieve this via M&As. We like the Group’s strategy and track record of bite-sized accretive acquisitions.
Maintain BUY for steady profile; TP S$2.19. Despite challenges at its Singapore bus and rail operations as well as a rising cost environment, the Group has been delivering steady growth. We attribute this to its geographical and business diversification. This differs markedly from its local peer, SMRT. Valuation remains reasonable at 15x FY14F PE.
ComfortDelgro – DBSV
Another record year
- Record 4Q/FY13 profits within expectations
- Dividend payout inched up to 56.5% with 4 Scts final DPS (FY13: 7Scts vs FY12: 6.4 Scts)
- Healthy balance sheet to pursue growth via M&As; medium term target of 60% overseas contribution
- Steady profile; maintain BUY rating and S$2.19 TP
4Q13 results in line. 4Q13 net profit inched up 4% y-o-y to S$59.9m, taking FY13 net profit to a record S$263m (+6% yo-y), despite cost challenges, particularly in Singapore. 4Q revenue grew 9.5% y-o-y driven by all segments except Automotive Engineering. However, EBIT margin dipped 1ppt to 9.6% on higher operating expenses (+10.7%), largely staff costs (+17.7%), fuel & electricity (+21.1%), but there were partly offset by lower materials & consumables costs (-10%).
Higher dividend payout. The Group declared 4 Scts DPS in the quarter, taking full year dividends to 7 Scts. This implies 56.5% payout (FY12: 6.4 Scts, 54.2% payout).
Healthy balance sheet to pursue growth. The Group is in net cash position which means it has headroom to pursue growth and/or raise dividend payouts. Either option could be a share price catalyst. Management has a medium term (5-7 years) target to increase overseas profit contribution to 60%, from 48% currently; we believe the Group would achieve this via M&As. We like the Group’s strategy and track record of bite-sized accretive acquisitions.
Maintain BUY for steady profile; TP S$2.19. Despite challenges at its Singapore bus and rail operations as well as a rising cost environment, the Group has been delivering steady growth. We attribute this to its geographical and business diversification. This differs markedly from its local peer, SMRT. Valuation remains reasonable at 15x FY14F PE.
SATS – DBSV
Grounded by weak Yen and high staff costs
- 3Q14 results below expectations; net profit dropped by 8.7% to S$42.9m
- Weaker contribution from Food Solutions arising from weaker JPY, higher staff costs
- Trim forecasts by 9%/2%
- Maintain HOLD, TP revised to S$3.25
3Q14 results underperform on weaker JPY, higher staff costs. 3Q14 net profit dropped by 8.7% y-o-y to S$42.9m, which was below our expectations. The Group’s revenue slipped by 1.1% to S$465.5m, largely on weaker contribution from its Food Solutions’ segment (-3.9%), mitigated partially by higher contribution from Gateway Services (+4.3%). Food Solutions’ revenue was impacted by JPY depreciation, as well as fewer unit meals served (-5.7%) in 3Q14.
EBIT margins weakened by 0.9ppt to 9%. Operating expenses dipped by a slower pace vis-à-vis topline, largely on the back of higher staff costs. The Group continued to be impacted by higher worker levies. As a result, EBIT margins dipped by 0.9ppt to 9% (3Q13: 9.9%).
Trim forecasts by 9%/2%. We cut our net profit forecasts by 9%/ 2% for FY14F/15F, on the back of a slower topline growth assumption due to a weaker JPY. Our FY15F downward revision is mitigated by the inclusion of contribution from its proposed Singapore Cruise Centre acquisition, which is currently being reviewed by the Competition Commission of Singapore. Management remains hopeful for an outcome by May 2014.
Maintain HOLD, TP at S$3.25. Our TP is adjusted down to S$3.25, due to lower earnings forecasts but mitigated partially, as we roll over our valuation base to FY15F. SATS trades at c.15.9x FY15F PE, which is +0.5 std deviation above its historical mean, and largely in line with regional peers. We believe downside to its share price should be muted, with its strong cash generation and relatively attractive dividend yield of c.5%. Maintain HOLD.