ComfortDelgro – OSK DMG
Aussie Bus Buy Value Accretive
ComfortDelGro (CD) announced that it is buying Driver Group’s Melbourne bus business for AUD22m (SGD27m). The acquisition’s estimated EV/EBITDA is 5.8x while CD is currently trading at 6.5x FY13 EV/EBITDA. As we are positive on the acquisition, we raise our FY13/14 earnings forecasts by 0.6%/1.1%. Maintain BUY, with a higher SGD2.25 TP (vs SGD2.20 previously), based on DCF (WACC: 9.0%; TGR: 2.5%).
A value accretive acquisition. We think the acquisition offers good value to CD as the purchase was done at 5.8x EV/EBITDA, lower than CD’s FY13 EV/EBITDA of 6.5x. We note that CD’s Australian bus segment commands lucrative EBIT margins of 19% – the highest amongst its bus segments. The EBIT margin for this acquisition is estimated at 22%. CD’s Australia bus unit is also its biggest contributor to bus profits, making up 22% of group operating profit.
Only buying the metropolitan bus routes and fleet. The Driver Group is a family-owned company based in Melbourne. It operates metropolitan bus routes in Melbourne’s eastern suburbs, as well as operates school services, tourist shuttles and charter services. However, CD is only buying the group’s five metropolitan bus routes and its fleet of 42 vehicles. CD is expected to gain some synergy from operating from its existing depots in Oakleigh.
Still positive on group’s overseas businesses. As the rail and bus operators in Singapore continue to face challenges, we are positive on the growth potential of CD’s overseas businesses, which make up 46% of operating profit and fetch higher operating margins of 13.2% (versus 10% for Singapore). Management is targeting for its overseas profit contributions to hit the 50% level.
Stock still offers value. At a FY13 P/E of 16.8x, CD is still more attractive than SMRT’s 25.0x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances its overseas growth prospects. We view this as a distinct advantage given the challenges facing the domestic land transport market.
SATS – MayBank Kim Eng
If Dividends Be The Food Of Investors, Then Pay On!
Structurally higher dividends. We see a multi-year re-rating of SATS as we believe that the company is likely to structurally increase their dividend distribution to shareholders. SATS announced special dividends in the last 3 years and we expect this to be the new normal. Management had previously highlighted their desire to optimize their capital structure (long run target: net debt to equity of 0.3X), which we view as a signal for structurally higher dividend distributions to shareholders.
Sufficient funding for M&A. Even after factoring in progressive increments in dividends over the next 3 years, we forecast a net cash position of more than SGD400mn by the end of FY16E. This implies that SATS would have a sizeable war chest of c.SGD900mn, should they achieve a capital structure with net debt to equity of 0.3X by the end of FY16E.
TFK Corp on the rebound. SATS offers an exposure to the aviation market in Japan through its inflight catering arm, TFK. The latest results from SATS suggest that TFK had turned a corner with FY13 EBIT contribution of SGD12.1mn (FY12: SGD0.3mn). While the weaker JPY would lead to lower contributions upon translation to SGD, we believe that the positive economic impact of a weaker JPY (eg. tourism, business travel) should result in a net positive effect on air travel demand and TFK. Either way, we expect TFK to continue leveraging on SATS’s existing business relationships with various airlines to clinch more contracts.
Our forecasts are above consensus. We are 8% above street view for our FY14-16E estimates, as we believe that consensus numbers may not have factored in incremental contributions from new contracts and our expectations of margin expansion as they scale up their operations.
Valuation. We believe that a DCF (WACC: 8.0%, terminal g: 1.0%) based valuation would best reflect the strong cash-generative nature of the company. Upgrade to BUY with TP of SGD3.90/shr.
SATS – MayBank Kim Eng
If Dividends Be The Food Of Investors, Then Pay On!
Structurally higher dividends. We see a multi-year re-rating of SATS as we believe that the company is likely to structurally increase their dividend distribution to shareholders. SATS announced special dividends in the last 3 years and we expect this to be the new normal. Management had previously highlighted their desire to optimize their capital structure (long run target: net debt to equity of 0.3X), which we view as a signal for structurally higher dividend distributions to shareholders.
Sufficient funding for M&A. Even after factoring in progressive increments in dividends over the next 3 years, we forecast a net cash position of more than SGD400mn by the end of FY16E. This implies that SATS would have a sizeable war chest of c.SGD900mn, should they achieve a capital structure with net debt to equity of 0.3X by the end of FY16E.
TFK Corp on the rebound. SATS offers an exposure to the aviation market in Japan through its inflight catering arm, TFK. The latest results from SATS suggest that TFK had turned a corner with FY13 EBIT contribution of SGD12.1mn (FY12: SGD0.3mn). While the weaker JPY would lead to lower contributions upon translation to SGD, we believe that the positive economic impact of a weaker JPY (eg. tourism, business travel) should result in a net positive effect on air travel demand and TFK. Either way, we expect TFK to continue leveraging on SATS’s existing business relationships with various airlines to clinch more contracts.
Our forecasts are above consensus. We are 8% above street view for our FY14-16E estimates, as we believe that consensus numbers may not have factored in incremental contributions from new contracts and our expectations of margin expansion as they scale up their operations.
Valuation. We believe that a DCF (WACC: 8.0%, terminal g: 1.0%) based valuation would best reflect the strong cash-generative nature of the company. Upgrade to BUY with TP of SGD3.90/shr.
TELCOs – OCBC
Downgrade to NEUTRAL
- All largely in line
- Outlook still muted
- Downgrade to NEUTRAL
Results were mostly in line
All three telcos reported 1QCY13 results that came in within our expectations. M1’s core earnings met 27% of our full-year forecast; SingTel met 27%; and StarHub met 25%. StarHub declared a quarterly dividend of S$0.05/share as guided, while SingTel declared a final dividend of S$0.10 (bringing its total dividend for FY13 to S$0.168).
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.2% QoQ to 4.3m at end-Mar, led by SingTel (+1.4%), M1 (+1.1%) and StarHub (+0.8%). While monthly ARPUs were fairly stable, the three telcos expect to see some uplifts this year, aided by the new tiered pricing plans with less generous data bundles; they also expect data usage to trend higher as more users migrate to the faster 4G networks.
Outlook still quite muted this year
While the exception of M1, which expects to see a moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlook. SingTel expects stable group revenue for FY14 while overall EBITDA should show low single-digit growth. It did raise its dividend payout ratio to 60-75% of core earnings. On the other hand, StarHub has pared its revenue guidance down to low single-digit growth from singledigit growth and kept its EBITDA margin at 31%. It also kept its dividend at S$0.20/share, or S$0.05/quarter.
Downgrade to NEUTRAL – yields are not attractive
In the search for yield, telco stocks have done very well, rising some 14-26% YTD. However, we note that the share prices have run up too much, too quickly, and this has driven yields down to below 5%. In addition, a more “risk-on” approach could see investors switching out of defensive plays. As such, we downgrade our rating on the sector to NEUTRAL from Overweight.
TELCOs – OCBC
Downgrade to NEUTRAL
- All largely in line
- Outlook still muted
- Downgrade to NEUTRAL
Results were mostly in line
All three telcos reported 1QCY13 results that came in within our expectations. M1’s core earnings met 27% of our full-year forecast; SingTel met 27%; and StarHub met 25%. StarHub declared a quarterly dividend of S$0.05/share as guided, while SingTel declared a final dividend of S$0.10 (bringing its total dividend for FY13 to S$0.168).
Review of Singapore mobile operations
Core post-paid mobile subscribers grew by 1.2% QoQ to 4.3m at end-Mar, led by SingTel (+1.4%), M1 (+1.1%) and StarHub (+0.8%). While monthly ARPUs were fairly stable, the three telcos expect to see some uplifts this year, aided by the new tiered pricing plans with less generous data bundles; they also expect data usage to trend higher as more users migrate to the faster 4G networks.
Outlook still quite muted this year
While the exception of M1, which expects to see a moderate earnings growth this year and pay out at least 80% of earnings as dividends, both SingTel and StarHub are more muted in their outlook. SingTel expects stable group revenue for FY14 while overall EBITDA should show low single-digit growth. It did raise its dividend payout ratio to 60-75% of core earnings. On the other hand, StarHub has pared its revenue guidance down to low single-digit growth from singledigit growth and kept its EBITDA margin at 31%. It also kept its dividend at S$0.20/share, or S$0.05/quarter.
Downgrade to NEUTRAL – yields are not attractive
In the search for yield, telco stocks have done very well, rising some 14-26% YTD. However, we note that the share prices have run up too much, too quickly, and this has driven yields down to below 5%. In addition, a more “risk-on” approach could see investors switching out of defensive plays. As such, we downgrade our rating on the sector to NEUTRAL from Overweight.