SGX Stocks and Warrants

Author: kimeng   |   Latest post: Fri, 15 Mar 2019, 12:09 PM


Telecom Sector: Stayin’ Alive

Author: kimeng   |  Publish date: Fri, 15 Mar 2019, 12:09 PM

  • StarHub DPS cut a sign of the times
  • ARPU pressure mounts
  • Go with Singtel and NLT

Quick Takeaways

4QCY18 saw StarHub and M1’s results coming in within our expectations, while that of Singtel’s was slightly under. Across all 3 telcos, postpaid mobile ARPU fell 4%-12% YoY, with the increasing number of switches over to SIM-only plans appearing to be the common factor. The big surprise last quarter came from StarHub’s deep DPS cut, from 16 S-cents in FY18 to potentially 9 S-cents in FY19, larger than our expectation of 12 S-cents.

Given StarHub’s new variable 80% payout ratio, this implies a NPAT of ~S$195m, which is around 9% lower than FY18’s S$215m underlying NPAT. Netlink NBN Trust exceeded its IPO projections across a number of metrics, and benefited from more orders from StarHub, as the latter will be ceasing cable services from July 2019.

5G Rollout

Recently in Parliament, Minister for Communications and Information, Mr. S Iswaran, noted that the government intends to roll out 5G in 2020, with a public consultation to be held shortly so as to shape the regulatory framework and spectrum allocation. 5G would indeed allow telcos to provide new offerings especially to enterprise customers, but we believe that incumbents are proceeding cautiously, given the capex requirements. Moving forward, we believe incumbents would be looking to share 5G infrastructure, as it would likely be untenable for all 4 MNOs to build out their own.

Great News for Consumers

Competition in the mobile postpaid scene remains relentless. In Dec’18, StarHub announced that it will be simplifying its SIM-only options by offering 3 plans with more generous data offerings in place of its previous five postpaid plans. On 14 Feb’19, Circles.Life announced that it would be replacing its 20GB for S$20 Data Plus option with a S$20 Unlimited plan.

Such ARPU-eroding developments should not come as a surprise, given TPG’s impending commercial rollout. However, more aggressive contract-less SIM-only plans might do little for customer stickiness, though operators do have little alternatives, given its increasing popularity and longer handset replacement cycles.

Yield Comparison

The yield spread for StarHub against Singtel has now compressed from 330 bps in the previous FY to -10 bps in the current FY. Singtel has guided that it will maintain its 17.5 S-cents DPS for FY19 and FY20, despite the US$525m that will be going towards the group’s participation in Bharti Airtel’s rights issuance, with respect to its 15% direct stake.

All considered, we continue to favour Singtel [BUY; FV: S$3.79] and NetLink NBN Trust [BUY; FV: S$0.90] but maintain our NEUTRAL rating on the Telecom sector.

Source: OCBC Research - 15 Mar 2019

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Wheelock & Co Ltd (20 HK): Strong Hong Kong Residential Sales

Author: kimeng   |  Publish date: Wed, 13 Mar 2019, 11:23 AM

Wheelock & Company Ltd’s (20 HK) FY18 revenue fell 32% to HK$48.5b which was lower than our full year estimates of HK$57.5b. The fall in revenue was mainly due to the adoption of new accounting standards and reduction in new project completions.

Group core profit grew by 9% YoY to HK$13.2b, largely attributable to higher IP profits in Hong Kong and Mainland China, as well as higher DP profits in Hong Kong. 2018 Hong Kong residential contracted sales grew by 52% to a new record of HK$26.0b.

The group declared a second interim DPS of HK$1.05, bringing full-year DPS to HK$1.550, compared to HK$1.425 last year. We currently have a BUY rating, and a fair value estimate of HK$67.70.

Source: OCBC Research - 13 Mar 2019

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China State Construction International (3311 HK): Lightening Its Balance Sheet

Author: kimeng   |  Publish date: Wed, 13 Mar 2019, 11:23 AM

  • Disposes loan assets to JV
  • Efforts to lower leverage
  • To continue monitoring gearing

Lightens on HK and PRC Assets

China State Construction International (CSCI) earlier announced that CSCF, a wholly owned subsidiary, has entered into a HK loan sale agreement with a JV company (50-50 owned between CSCI and Sunrise Cayman) in which CSCF will sell assets (HK loan assets) to the JV at a price of US$127.5m which is similar to the book value of the assets.

Grand Wealth, another wholly owned subsidiary of CSCI, also entered into a PRC loan sale agreement with the JV company in which Grand Wealth will sell assets (PRC loan assets) to the JV at a price of US$356.6m which is also similar to the book value of the assets. CSCI has also agreed to provide a standby letter of credit facility to the JV company up to US$800m should funds be required for an asset purchase or liquidity drawdown (interest rate 5.7% p.a.).

Off-balance Sheet Structure to Lower Leverage

Sunrise Cayman had recently issued US$500m worth of fixed rate notes (5.25%, due 2024) to finance the transactions. This is a special purpose vehicle whose share capital is held by Walkers Fiduciary Ltd as share trustee on trust for charitable purposes, and the off-balance sheet structure means that with the above transactions, CSCI is likely able to lower its leverage, which is what the market has been monitoring with regards to its capital recycling efforts. Still, investors are likely to continue to watch out for the group’s accounts receivables which have been building up as CSCI undertakes projects which require more working capital.

At this point in time, the group has to strike a balance between pursuing growth and maintaining healthy cashflows and a manageable balance sheet position. With efforts to lower its leverage and improvement in overall market sentiment, we increase our P/B valuation to 1x book, and our fair value estimate rises from HK$5.55 to HK$8.54. Risks include equity raising as the share price appreciates along with the broader market recovery.

Source: OCBC Research - 13 Mar 2019

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Singapore REITs: A Shelter for the Doves and Uncertainties

Author: kimeng   |  Publish date: Tue, 12 Mar 2019, 09:31 AM

  • Projecting 1.9% FY19 DPU growth
  • Firm trading performance may continue
  • Top picks: KDCREIT, FCT and ART

Healthy 4QCY18, Look Forward to Further Growth

The 24 S-REITs under our coverage largely turned in a healthy performance for the recently concluded 4QCY18 results season, delivering average DPU growth of 2.1% on a YoY basis. 21 of these met our expectations, 2 exceeded while only 1 missed (Starhill Global REIT).

Looking ahead, we are projecting FY19F DPU growth to come in at 1.9% (market-cap weighted) for the S-REITs under our coverage. This is expected to continue in FY20F, with projected DPU growth of 2.4%.

Hospitality REITs Painted a Much More Sanguine Outlook

Office REITs continued to show optimism on further rental growth in 2019, but this would likely moderate from the solid 14.9% growth in 2018 (based on CBRE core Grade A CBD data). We see downside risks on Office REITs as this optimism has likely been priced in and we believe there is more room for disappointment than an outperformance.

On the other hand, most Hospitality REITs painted a more sanguine outlook ahead, while recent hotel transactions lead us to believe that the asset valuation of Hospitality REITs are conservative.

Valuations Have Tightened, But Near-term Trading Performance May Remain Robust

The forward yield spread between the FTSE ST REIT Index (5.81%) and the Singapore government 10-year bond yield (2.19%) last stood at 362 bps. This is approximately one standard deviation (s.d.) below the 5-year mean of 404 bps. While valuations leave nothing to be excited about at this level, in our view, we remain constructive on the near-term trading performance of S-REITs. This would be underpinned by continued benign expectations of the rate hike trajectory by the Federal Reserve in 2019.

We note that during times in 2018 when the market was risk-on, the yield spread of SREITs had compressed to 2 s.d. below the historical average. Based on the Fed Funds futures rate, the market is pricing in no rates hikes by end 2019. In fact, the probability of a rate cut as implied by the fed funds futures rate is actually higher than the probability of a rate hike.

Hence, should the Fed choose to raise rates at least once this year (given the still tight labour market), this may cause markets to relook at their assumptions and result in capital outflows from yield sensitive instruments such as REITs. Notwithstanding this risk, a rate hike, if any, would likely only happen in 2H19.

Maintain NEUTRAL. Our longer term preferred picks are still Keppel DC REIT [BUY; FV: S$1.60] and Frasers Centrepoint Trust [BUY; FV: S$2.50]. We add Ascott Residence Trust [BUY; FV: S$1.25] as a replacement for FLT in to gain exposure to the hospitality sector and also in light of the latter’s strong share price performance.

Source: OCBC Research - 12 Mar 2019

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Singtel: Recapitalisation Exercise at Airtel

Author: kimeng   |  Publish date: Mon, 11 Mar 2019, 11:20 AM

  • US$525m for 15% direct stake
  • Dividend guidance unchanged
  • FV of S$3.79

Hello GIC

Following Bharti Airtel’s (Airtel) upcoming US$3.5b rights issuance, Singtel has announced that it will be subscribing fully to its rights entitlement for its direct stake of 15% in Airtel, or ~US$525m. Bharti Telecom (BTL), one of Airtel’s major shareholders, will participate in its take-up entitlement, except for ~US$700m which will be renounced to GIC. As a result, Singtel’s effective stake in Airtel will drop from 39.5% to 35.2% assuming full subscription on the public tranche; Singtel has a 48.9% stake in BTL as of FY18.

Management has shared that Airtel’s recapitalisation exercise should be oneoff in nature, while BTL has no intention to raise equity to fund their rights participation. Airtel will also be looking to issue ~US$1b of perpetual bonds, which Singtel will not be participating in.

ARPU Inching Up

Management remains cautiously optimistic of Airtel’s prospects in India, given the significant consolidation, as well as Airtel’s 4% QoQ growth in mobile ARPU after 9 consecutive quarters of decline. On the latest earnings call, Airtel’s management noted that the upward ARPU movement was due to reasons such as its minimum ARPU plan and content packaging efforts.

While the former has resulted in a significant erosion of Airtel’s customer base, the quality of the base is now being reflected through the ARPU increase. Taken together, management believes that underlying customer revenues are seeing early signs of bottoming out.

Fixed Dividend Guidance Unchanged

On a pro forma basis, Singtel’s net debt to EBITDA (including share of associates’ pre-tax profits) will rise from 1.58x to 1.69x, as of Dec’18, which we believe is sufficient for Singtel to keep its investment grade rating. Management has shared that the US$525m contribution can be comfortably funded by a mixture of cash and debt, and there is no push arising from this to divest any of its non-core assets (e.g stakes in Singapore Post and NetLink Trust).

Assuming that no further than US$525m of contribution is required of Singtel, we believe that FY20F should see net debt to EBITDA (including associates) increase from 1.59x to 1.70x. Crucially, there has been no change to management’s dividend guidance of 17.5 S-cents/share for FY19 and FY20.

We note that the rights issue is currently subject to regulatory approval. We maintain our BUY rating and FV of S$3.79 for now.

Source: OCBC Research - 11 Mar 2019

Labels: SingTel
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M1 Ltd: Compulsory Acquisition Level Crossed

Author: kimeng   |  Publish date: Thu, 7 Mar 2019, 09:33 AM

As of 6 Mar 19, the Offeror and its concert parties now have 92.2% of total shares in M1. Given that the Offeror has received valid acceptances of not less than 90% of total issued shares (other than those already held by the Offeror, related corporations or nominees), the Offeror intends to exercise its right of compulsory acquisition at the offer price of S$2.06 per share.

M1 will be delisted from the SGX-ST though the delisting date has yet to be announced.

As for dissenting shareholders, the Offeror has highlighted that the current offer is an opportunity for shareholders to cash in sooner rather than waiting for the Offeror to exercise its right of compulsory acquisition. The offer remains open for acceptance till 18 Mar 19 (5.30pm).

We continue to maintain our ACCEPT THE OFFER rating on M1.

Source: OCBC Research - 7 Mar 2019

Labels: M1
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