Singapore Airlines Flying on Fumes
- FY12 net profit of S$336m (-69% y-o-y) below expectation, due to unexpected loss in 4Q12
- Premium travel still shaky; High fuel prices will pressure margins but balance sheet firm with cash and investments of nearly S$4 per share
- Maintain HOLD, TP S$10. Prefer SIA Engineering
4Q loss of S$38m a surprise.
FY12 results were below expectations. The company suffered a loss in 4Q12, the first time in over two years. For the full year FYE Mar 12, SIA’s revenue rose by just 2.3% y-o-y to S$14,858m even as total operating costs rose by nearly 10% y-o-y to S$14,572m, largely on higher jet fuel prices. As a result, the group’s EBIT fell by 77.5% y-o-y to S$286m. Net profits for the full year fell by 69% y-o-y to S $336m, presenting an ROE of just 2.5%. A final dividend of S 10cts was proposed, compared to S 40cts last year.
The outlook remains challenging.
This will be the case for at least the next few quarters as yields remain under pressure due to the uncertain global economic environment and as jet fuel prices remain high. As a premium carrier, SIA’s profitability only really shines through during good times and it’s hard to see a quick rebound for premium travel any time soon. The high fuel price situation also continues to pressurise margins. We have cut our FY13 forecast by 33% and project SIA’s ROE to be an unexciting 4%-5% over FY13 and FY14.
Maintain HOLD, TP S$10. With ROE expected to be in the mid-to-low single digit range, it’s hard to justify SIA trading over its book value of S$11. We maintain our HOLD call and TP of S$10, based on 0.9x FY13 P/B.
Singapore Airlines 50th Anniversary Collection 4
SingTel Weak Bharti earnings although operating trends are healthy
- Bharti improved EBITDA but earnings were 20% below consensus due to forex losses and tax provisions. Strong results at Telkomsel and AIS likely to offset weakness at SingTel in 4Q12F.
- Separately, Optus proposed an 8% reduction in its workforce in order to counter slow revenue growth.
- Bharti and Telkomsel are expected to drive growth in FY13F with upside risk to our SingTel projections. Maintain BUY for SingTel for offering mix of growth and 5.6% yield
SingTel’s managed hosting solution helps businesses avert disaster. (Singapore).: An article from: Asia Pacific Telecom
Commendable operating trends at Bharti.
Bharti’s 4Q12 earnings of Rs. 10.1m (flat QoQ, -28% y-o-y) were 20% below consensus expectations due to high forex losses (-Rs 1.3bn) and higher tax provisions (-Rs 1.45bn). Most importantly, 4Q12 EBITDA improved to Rs 62.3m (+4.5% QoQ, +13.5% YoY) due to margins improving to 33.3% from 32.2% in 3Q12. Cellular ARPU improved to Rs 189 from Rs 187 in 3Q12 as traffic grew a healthy 5% q-o-q, showing that Bharti’s price points are quite competitive now. Non-voice revenue was stable at 14.3% of service revenue as declining SMS offset growth in data revenue.
Optus on cost reduction drive.
Optus is proposing to make approximately 750 roles redundant over the coming months with an associated one-off charge of approximately A$37 million. The majority of these roles will come from senior and middle management as well as operations, back office and support functions.
Telkomsel and AIS to offset weakness in 4Q12.
Bharti contributes 9%% of SingTel’s earnings. Telkomsel, which contributes 19% of SingTel’s earnings, reported 23% y-o-y and 6% q-o-q rise in earnings for the March quarter. AIS, which contributes 6% of SingTel’s earnings is expected to report a 24% y-o-y and 19% q-o-q rise in earnings for the March quarter.
Cheap at 12.5x PE (hist. average 13.2x) and offers 5.6% yield.
Given a low-earnings base for FY12, Bharti is projected to register double-digit growth, as many of the small players may have their licenses cancelled. This will be advantageous to Bharti.
Sakari Resources Look beyond the low quarter
- 1Q12 earnings below our estimates as Jembayan mine production plan skewed towards 2H12
- We expect sequential earnings recovery, aided by potential coal price rebound in 2H12
- Maintain BUY with lower TP of S$2.40 on attractive valuations and healthy dividend yield
Reluctant Readers
Slow start to the year.
1Q12 results for Sakari came in below our expectations, largely because of disappointing numbers from the Group’s Jembayan mine. Reported net profits of US$14.5m were down 65% y-o-y, and excluding one-off expenses, core net profits of around US$19m form about 10% of our existing full-year estimates. This was on the back of lower coal production and sales (down 25% to 2.0m tons) and subsequently, high cash costs per ton, exacerbated by ongoing pit preparation and development work at both mines.
Earnings will pick up sequentially.
While benchmark Newcastle coal prices could hover around US$95-100/ ton in the near term, we note that the April contracts between Japanese buyers and Australian miners have been inked at levels of US$115/ ton, and hence, we remain confident of the medium- to long-term outlook and believe that coal prices should rebound in 2H12. The ongoing softness in the sub-bituminous market prompted management to bring forward development of two new mine pits at Jembayan to 1Q12, and thus, SAR remains in a position to benefit from higher coal sales, amidst potentially
better market conditions in 2H12.
Maintain BUY.
Following this set of results, we have chosen to be more conservative in our volume and cash cost assumptions for Jembayan mine, and we have lowered our FY12/13 EPS estimates by 23%/ 18%. Given the recent underperformance of the stock though, we believe that the weak start to FY12 has already been largely priced in, and current below-mean valuations could be an attractive entry point to play the sequential recovery in earnings. Our TP has been adjusted down to S$2.40 but we have retained our BUY call, given the limited downside and a dividend yield of >5%.
SMRT
SMRT ($1.68, down half)
Final dividend has, not surprisingly, been cut by 1.05 cents to 5.7 cents from 6.75 cents which had prevailed for several years. (Interim was 1.75 cents.)
While the 59% plunge in earnings (to $13.9 mln) was largely on the back of the $21.67 mln goodwill impairment (relating to the acquisition of TIBS more than 10 years ago), few would dispute the part played by the $900 mln spending to fix the ageing rail infrastructure over the next 8 years.
What remains disappointing is the absence of clarity on just how the $900 mln program is to be co-funded with the LTA.
Dividend guidance (4% yield) is also of little significance: market price to determine the dividend to be paid to produce a 4% yield?
All this in turn makes it difficult to form a clearer investment stance on SMRT.
HONG FOK and Penny Stocks
The HONG FOK property company has resisted SGX’s request to post the minutes of its controversial Apr 26th AGM on the exchange’s website.
At the AGM, minority shareholders present had raised concerns over directors remuneration, absence of remuneration committee (hence the informal determination of remuneration) etc.
Note there are 4 executive directors out of a total of 7 board directors: Cheong Kim Pong (Chairman-cum-CEO), Pin Chuan (MD), Mdm Hooi Kheng and Sim Eng. Collectively, the 4 siblings received >$11.5 mln for year ended Dec’11. (Non exec directors are Jackson Lee, Tan Tock Han, a brother-in-law of the 3 Cheong brothers, and Lai Meng Seng.)
Minority shareholders were also displeased with absence of dividends since 2007. (Note the 2011 profit of $139.66 mln was due entirely to the $151.07 mln revaluation gain of investment properties, which is a non-cash item.)
The stock recently went ex-1-for-2 bonus issue.
PENNY STOCKS
Sunday Times reported that
(a) one bank-related broking house listed 13 penny stocks last Thursday Apr 26 that its customers were no longer allowed to trade on-line, including Artivision (24 cents, down 1.5), Digiland (0.3 cent, unch) and JEL (6.4 cents, down 1.4); and (b) another bank-related house banned Yoma Strategic (52 cents, down 2.5) and JEL from on-line trades.
We have previously highlighted the growing popularity of penny stocks. For instance, in the last 7 sessions, while trading volume totaled $7 bln in value terms, the number of units traded was a mind boggling 28.5 bln shares (especially 7 bln shares on Wednesday Apr 25th), and which prompted several queries by the exchange, a situation not seen since 2009 and 1999.
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SMRT not kept pace with the rising operating costs
In its editorial piece in the latest issue, the Edge noted that the revenue SMRT takes in have not kept pace with the rising operating costs: bus and train fares controlled by the Public Transport Council have risen just 2.7% in total since 2005; that given the continued discontent any requests for another fare increase is likely to be significantly watered down or even rejected outright.
It rightly concluded “it is time for the government to show as much decisiveness in fixing the framework under which the public transport companies operate, as SMRT is showing in fixing its trains“.
All eyes will be fixed on the results for Q4 / fiscal year ended March’12 (to be released later today), specifically the fate of the final dividend which has been fixed at 6.75 cents since . The 13.5-cent or 7.4% drop since the $900 mln spending to fix the “ageing infrastructure” was announced, appears to suggest it will be slashed.
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Broadway Industrial is Improving but more vigour needed
- 1Q12 boosted by MTM, core profits slightly under
- Recovery underway but more strength needed to drive earnings upgrade; Q1 core is <10% of FY12F
- Maintain forecast and TP until stronger pickup in operating momentum, likely end Q2; Downgrade to HOLD on limited price upside
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Core profits fell short due to temporary cost inefficiencies.
Broadway Industrial Group Bottom-line was S$15.6m. If excluding S$14m of unrealised mark-to-market gains and disposal gains, core profits would have been S$1.3m (vs our S$1.9m forecast). This is despite higher-than-expected sales of S$157.7m (+14% y-o-y, +68% q-o-q). Margins were hit this quarter by a wage hike in China and operating expenses in Thailand (to maintain the workforce although production was suspended). Expect production to normalise to pre-flood capacity by end April.
Outlook improving, but needs more oomph for earnings upgrade.
HDD is expected to continue rising on recovery from the floods in Thailand. Broadway would also start mass production of WD components in 2H12. However, to manage costs, more labour-intensive programmes would need to be allocated to Thailand and Chongqing. Meanwhile, sales and margins for Foam Plastics are expected to improve in the coming quarters. Notwithstanding the improving outlook, we need more lift to justify an earnings upgrade at
this juncture, as Q1 core profit is less than 10% of our FY12F of S$22m.
Downgrade to HOLD for now on limited upside.
Broadway should continue to benefit from the continued recovery in HDD and other divisions, but until further earnings upgrade, stock has reached our TP of S$0.44 (mean P/BV of 0.87x). Hence, downgrade to HOLD.
China Merchant Holdings Big jump in profit
- 1Q12 net profit of HK$112m in line with expectations
- Firm results driven by contribution from Yongtaiwen Expressway and organic growth on existing roads
- On track for a record year in 2012
- Maintain BUY, TP S$1.12. Stock is trading cum dividend of 3Scts and offers a further 7.7% yield
- China’s Sovereign Wealth Fund: Developments and Policy Implications
Firm results from core toll road operations.
While losses from its property business widened to HK$11.5m from HK$2.4m a year ago, net profit contribution from the China Merchant Holdings’ toll road business jumped from HK$47m in 1Q11 to HK$124m (+161% y-o-y). This was due to new contribution from Yongtaiwen Expressway (acquired in July 2011) and firm organic growth from its jointly controlled roads (+12% to HK$55m). Management is positive on outlook. The company expects its toll road business to continue performing well and for the first time in a couple of years, is turning more positive on the New Zealand property market.
Our View
Yongtaiwen acquisition has indeed proven to be a transformation.
The acquisition of Yongtaiwen Expressway last July has significantly boosted both top and bottom line, in addition to enhancing the quality of its road assets. We project core earnings to hit nearly HK$500m in FY12, which is more than double from 2009. Meanwhile, organic earnings growth for its roads should be in the mid to high single digit.
Property business could finally bring some cheer. The company has finally turned more positive on its New Zealand property business, which could provide upside to our forecasts if it can make a positive contribution or perhaps could finally be disposed off at a decent price.
Recommendation
Very attractive stock valuations, maintain BUY.
The stock is trading at just 7.6x fully diluted FY12 core PE and offers a prospective net yield of 7.7%. We believe the company could make further road acquisitions to enhance its earnings and growth prospects. This could act as a catalyst to help the stock further re-rate.
Starhill Global REIT Wish upon a star
- 1Q12 DPU of 1.07 Scts in line
- Rejuvenation of Wisma Atria on track for completion; expected to be well received
- Income relatively secured; subsequent quarters to see earnings improvement. BUY, TP S$0.71 maintained
1Q12 DPU of 1.07 Scts.
Starhill Global REIT (SGREIT)‘s topline and net property income firmed slightly higher by 0.4% and 0.8% y-o-y to S$46.0m and S$37.3m respectively. Performance of its Singapore /Australian/Malaysian properties continued to show grow steadily, more than offsetting weakness in Chengdu, where increased competition, while income vacuum from ongoing tenant renovation resulted in a 9% y-o-y drop in net property income. As such, distributable income came in at S$23.3m (before income to CPU holders of S$2.35m). 1Q12 DPU of 1.07 Scts forms 25% of our full year estimates.
Balance sheet remains strong.
Starhill Global REIT’s balance sheet remains strong with a low gearing of 30.4% with minimal loans up for renewal in 2012.
Our View
Rejuvenation of Wisma Atria expected to be well received.
The manager updates that the current asset enhancement works remain on track for completion in 3Q12 with strong take-ups from new-to-market brands and new concepts. We note that the first tenant, Swatch, has commenced operations and opened its flagship duplex shop in Wisma Atria.
Portfolio wide occupancy levels remain high at 99%.
Retail and office occupancies continue to see improvement, with retail remaining firm at c98.4%, a minimal drop in occupancies despite the ongoing asset enhancement at Wisma Atria. We see positives from improved office take-ups at both office space at Ngee Ann City and Wisma, achieving occupancy of 96.8% and 97.0% respectively. This increase in take-up more than offsets the slight negative reversions at Ngee Ann City office. Looking ahead, income should be relatively secured with only c4.6% of rents up for renewal. We expect performance to continue to improve as the AEI Wisma moves towards its tail end of its development schedule.
Recommendation
BUY call maintained, TP S$0.71 based on DCF. SGREIT remains attractive for its prime retail exposure, supported by an attractive FY12-13F yield of 6.5-7.0%.
Technology: Watch for the turnarounds
- Q1 more muted than initially thought as macro uncertainties loom and margin is weak
- But FY12 growth remains intact given continuous recovery in sales and margin going into Q2
- Tech stocks could be lackluster near term but keep watch on Hi-P and Amtek for potential turnaround
Q1 core profits to decline 16% q-o-q.
Following our recent channel checks, we now expect tech sector revenue to decline 5.2% y-o-y and 7.3% q-o-q while core profit would fall 42.4% y-o-y and 15.6% q-o-q. This is below our initial expectation for a small rebound from 4Q11 because apart from Q1 being a seasonally slow quarter, the resurgence of European/macro concerns appears to have dampened sentiment and demand after Feb. Meanwhile, margin remains pressured by higher labour costs.
Q2 guidance likely upward bias; FY12 growth is intact but still early for significant upsides.
We expect Q2 to be underpinned by continuous flood recovery for HDD and/or start of gradual ramp up of new products for seasonal Q3. Our channel checks maintained growth for the full year. However, in view of still uncertain macroeconomics, we do not expect major earnings upgrade this reporting season. Rather, we see end of Q2 as a more
likely timing. Upside is likely to be a combination of sales and margin improvements.
Neutral on Tech stocks but keep turnaround plays on radar.
We believe inline results and a modest chance of outperformance would limit upside for tech stocks in the near term. Hence, while maintaining our positive view on Venture and World Precision for their long term growth profiles, we would await strong turnaround for Hi-P and Amtek. In our view, a key risk for Hi-P is the transition into new processes and new customers. If the company can achieve steady ramp into 2H12, upside is possible to a very back-end loaded 2H12. For Amtek, upside would come from the plethora of new projects kicking in from April through the rest of 2012. Amongst these new programmes is Enclosure for a tech bellwether and components for Tier 1 automotive parts suppliers. As sales improve, operating leverage would also lead to a rebound in margins.
