SingTel – OCBC
Decent FY14 start; but outlook muted
- 1Q met 24% of FY14 estimate
- Margin pressures likely
- Lower S$3.81 FV
Decent start to FY13
SingTel posted 1QFY14 revenue of S$4293.3m, down 5.3% YoY and 4.2% QoQ, meeting about 24% of our full-year forecast; this largely weighed by lower revenue in Australia and the weaker AUD. Reported net profit though climbed 7.0% YoY and 16.4% QoQ to S$1011.0m, boosted by stronger EBITDA margins and higher associate contributions. Core net profit (excluding exceptional items) rose 5.5% YoY (but fell 10.4%) to S$897m, also meeting 24% of FY14 forecast. Meanwhile, free cashflow also climbed 23% YoY to S$893m, mainly due to timing and higher dividend receipts from associates.
Outlook remains somewhat muted
But going forward, the group’s outlook remains somewhat muted, citing the continued weakness in the AUD. SingTel now expects revenue from Group Consumer to decline by high single-digit level, with lower revenues from Optus, and EBITDA to decline by low single-digit level (versus single-digit growth previously). Still, it expects Mobile Communications revenue from Singapore to grow by low single-digit level; Australia’s mobile service revenue to decline by mid single-digit level. Group Enterprise revenue should remain stable; but EBITDA to see low single-digit decline (versus stable previously). Its Group Digital Life revenue should grow at least 50% on an organic basis; but it will continue to see startup losses. Capex will also increase to S$2.5b to support LTE coverage expansion; invest up to S$2b for digital business over the next three years.
Maintain HOLD with S$3.81 FV
In view of the latest guidance, we pare our FY14F revenue forecast by 5% and core earnings by 1.3%. Also accounting for weaker AUD forecast, our SOTP-based fair value slips from S$3.82 to S$3.81. Maintain HOLD. Separately, SingTel now plans to keep its Optus satellite unit, saying it is committed to growing and investing in the business.
ComfortDelgro – OCBC
Fairly valued at this point
- 2Q13 results in-line
- A smooth 2H13 to be expected
- But limited upside for time being
2Q13 results within expectations
ComfortDelGro’s (CDG) 2Q13 results were in line with expectations. Higher bus/rail ridership and rental income from its taxi fleet boosted revenue by 2.7% YoY to S$908.4m while operating profit grew by 6.0% to S$112.6m as lower fuel costs helped to improve operating margin (12.4% vs. 12.0% in 2Q12) and offset higher staff costs. 2Q13 PATMI came in 6.0% higher YoY at S$68.9m. For 1H13, CDG announced an interim dividend of 3 S cents (vs. 2.9 S cents for 1H12).
More of the same for 2H13
For 2H13, we expect continued revenue growth for SG operations (bus, rail and taxi) while Australia and UK bus operations should see slight increments from contributions of recent acquisitions. Cost pressures related to higher staff costs (ramp up of Downtown Line etc) are to be expected but the current fuel environment and hedges in place should help to mitigate the impact on operating margins.
Region 4 auction & SG fare review
Nonetheless, there exist some dampeners. Although management expressed confidence in re-securing bus services to Region 4 (NSW, Australia) – the results of the tender process will be known by end-Aug/early-Sep – lower operating margins are to be expected given the increase in competitive pressures. In addition, any SG fare increases are only likely to be known in late 4Q13 or early-FY14.
HOLD for now
We leave our FY13 forecasts unchanged given the in-line results. However, while we continue to prefer CDG over SMRT for its management and more diversified earnings streams, we feel that much of the upside has been priced in already and the lack of any near-term catalysts limit further gains. Therefore, we downgrade CDG to HOLD for the time being and maintain our fair value estimate at S$1.95.
ComfortDelgro – OCBC
Fairly valued at this point
- 2Q13 results in-line
- A smooth 2H13 to be expected
- But limited upside for time being
2Q13 results within expectations
ComfortDelGro’s (CDG) 2Q13 results were in line with expectations. Higher bus/rail ridership and rental income from its taxi fleet boosted revenue by 2.7% YoY to S$908.4m while operating profit grew by 6.0% to S$112.6m as lower fuel costs helped to improve operating margin (12.4% vs. 12.0% in 2Q12) and offset higher staff costs. 2Q13 PATMI came in 6.0% higher YoY at S$68.9m. For 1H13, CDG announced an interim dividend of 3 S cents (vs. 2.9 S cents for 1H12).
More of the same for 2H13
For 2H13, we expect continued revenue growth for SG operations (bus, rail and taxi) while Australia and UK bus operations should see slight increments from contributions of recent acquisitions. Cost pressures related to higher staff costs (ramp up of Downtown Line etc) are to be expected but the current fuel environment and hedges in place should help to mitigate the impact on operating margins.
Region 4 auction & SG fare review
Nonetheless, there exist some dampeners. Although management expressed confidence in re-securing bus services to Region 4 (NSW, Australia) – the results of the tender process will be known by end-Aug/early-Sep – lower operating margins are to be expected given the increase in competitive pressures. In addition, any SG fare increases are only likely to be known in late 4Q13 or early-FY14.
HOLD for now
We leave our FY13 forecasts unchanged given the in-line results. However, while we continue to prefer CDG over SMRT for its management and more diversified earnings streams, we feel that much of the upside has been priced in already and the lack of any near-term catalysts limit further gains. Therefore, we downgrade CDG to HOLD for the time being and maintain our fair value estimate at S$1.95.
SingTel – MayBank Kim Eng
No Strong Catalysts Either Way
1QFY14 results within expectations. Underlying net profit fell 10% QoQ to SGD897m but rose 5.5% YoY. There was an exceptional gain of SGD114m from Bharti’s issue of 5% new shares to Qatar Foundation but this is not included in underlying numbers. Generally, it was a strong set of results with group EBITDA profits up 4.3% and EBITDA margin up 2.8% points to 30.2%, driven by the Singapore consumer business (EBITDA +20%) and a 5% rise in Australia EBITDA despite lower revenue.
2QFY14 margins would be lower. The strong margins in 1Q were definitely helped by lower mobile subscriber acquisition costs in both Singapore and Australia given that nobody launched premium handsets except HTC. However, we do not expect it to last in the rest of the year as Apple is expected to release its new iPhone in Sep/Oct and the other players are bound to follow up with new models. BPL-related content costs and A$ weakness will also crimp margins. The new BPL season starts in Aug and SingTel will start to amortise its cost in 2QFY14.
Guidance revised down. A change in reporting format makes it a bit difficult to forecast but SingTel has generally revised its guidance down. Significantly, group revenue is now expected to fall by mid single digits (previously stable) while EBITDA is expected to fall by low single digits (previously grow by low single digits). According to management, this revision is solely due to the A$ weakness, which has fallen by 10% since the beginning of May, and may be revised up again if the currency reverses direction.
Maintain HOLD, no catalysts. In the absence of strong catalysts either way, we remain Neutral on SingTel, with a DCF-derived target price of SGD3.60. Business conditions are fair to stable with the exception of currency volatility, which is a perennial bugbear for SingTel given that more than half of its profits come from foreign markets. We have changed our valuation methodology to DCF to account for this potential volatility.
ComfortDelgro – MayBank Kim Eng
Steady Profits In-line With Expectations
2Q13 steady, in-line with expectations. CDG reported another steady set of results with net income of SGD68.9m (+19% QoQ, +6% YoY) in 2Q13. Except for lower Auto Services sales due to the ongoing divestment of its car dealership business in China, top line growth was broad=based. With the stronger first half performance, the company declared higher interim dividend of 3.0cents (FY12: 2.9cents).
Strong UK bus contributions, Bus losses at SBST narrowed. Despite the relatively weaker GBP, its UK bus operations reported stronger EBIT due to improved margins on receipt of incentives in the quarter. With lower operating cost from favourable diesel hedges, core operating losses at the Singapore bus unit (SBS Transit) narrowed to SGD3.0m (2QFY12: -4.8m, 1QFY13: -5.4m). We believe that a potential change in business model for the Singapore bus operations could reverse sustained losses for the operators.
Weak rail profits to continue in near term. Excluding advertising and rental income, CDG’s rail operation slipped into the red as the unit incurs higher start up costs for Downtown Line (DTL) of c.SGD4m in the quarter. Excluding start up related expenses for DTL, the matured North East Line (NEL) turned in stable EBIT of SGD3.3m (2QFY12: +3.1m, 1QFY13: +3.6m). Management guided for incrementally higher rail operating expenses as they prepare for the opening of DTL stage 1 at the end of the year.
Optimistic on re-tender of bus operations in Australia. CDG participated in the re-tender for their existing Region 4 bus operations in Australia. While the potential loss of this key operating region is a near term stock risk, management sounded optimistic on the tender results that are expected to be announced within the next two months.
Maintain Buy with TP of SGD2.33 unchanged. We maintain our Buy rating on the stock as we believe that acquisition-led growth would continue to drive firm earnings over the coming quarters. Our TP of SGD2.33 is based on 18X FY14E P/E to capture full year contributions from its recent acquisitions.