Warrants Highlight

Singtel - MER's targets $3.65

SingTel announced on Wednesday, 10 Oct that it has secured the Barclay's Premier League rights for the next three seasons i.e 2013/2014-2015/2016 on a non-exclusive basis. No pricing details and no conditions were revealed.

Strategically, Macquarie Equity Research (MER) sees this move by SingTel as positive as it keeps SingTel relevant in the pay TV business and at the same time allows it to lower its costs should StarHub purchase the content as well.

MER therefore reiterates its ‘Outperform’ rating on Singtel with a 12-month price target of S$3.65. Below are further excerpts from the report released yesterday.

Macquarie’s SGX warrants

Higher price, lower cost?
While details remain scarce, MER believes, SingTel has pulled off an interesting catch 22 situation for its rival Starhub with this announcement. MER believes the pricing for this three year block is higher than the previous three year block which was said to have cost about S$400m. However, should StarHub (or any other party) wish to purchase the rights as well, the cost would be shared, thus potentially lowering the cost for SingTel vs the last three year block.

Non-exclusive = no cross carriage.
Because the content was bought on a non-exclusive basis, there is no obligation on the part of SingTel to distribute the content to StarHub's customers under the cross carriage rules in Singapore. So, StarHub either has to pay up and lower the cost for SingTel, or abstain and risk SingTel eroding its own pay TV business value by mopping up content as they come off exclusivity for StarHub.

Low cost impact on SingTel, not StarHub.
Assuming a 25% rise for the BPL content for the three year block, SingTel's costs would rise c.S$33m (0.8% of FY14 profits) if StarHub does not also buy the rights, or if StarHub, does buy the rights, it would reduce its costs by S$50m (1.2% of FY14 profits). For StarHub, an S$83m pa rise in costs would account for 18% of its FY13 profits assuming no revenue uptick. Assuming that from a net basis i.e it generates revenues against the cost and adds S$21m (25% net loss margin) to its net costs, then the impact is a 4.5% hit to profits in FY13.

MER’s recommendation on SingTel
At 13x FY13 price to earnings ratio and 5.9x adjusted EV/EBITDA while offering a sustainable 5% dividend yield, MER maintains SingTel as its top pick within the Singapore telecoms space.

Singapore Market Wrap

STI struggles to break into positive territory

The STI's winless streak continued despite a last minute surge in an attempt to close in positive territory. Insufficient market catalysts and a downgrade of Spain's creditworthiness by S&P caused it to close marginally down at 0.04%(1.15 points) to 3032.66 day-on-day (d.o.d).

STI 3250MBeCW121231 (Q4OW) exercise level 3,250.*
STI 3100MBePW121231 (Q4PW) exercise level 3,100.*

Ezra rid stake in AMC Connetor to Aker
Ezra is transferring 50% of equity interest in AMC Connector AS to Aker Oilfield AS for approximately US$45.6 million. This is subject to the completion of it's OY Sale and BB-Transaction (offshore construction and cable lay vessel, the Lewek Connector and bareboat charter) expected to take place in the 4th quarter of 2012. Prior to the announcement of this news, Ezra ended flat at $1.12 d.o.d.

Ezra MBeCW130603 (Q8EW) exercise level 1.172.*

DBS divests shares in BPI
DBS announced that it has agreed to divest part of its investment in The Bank of the Philippine Islands (BPI) to Ayala Corporation for $757.3 million in cash. The transaction will realise a gain of approximately SGD 450 million against the carrying value of the investment. However, except as disclosed, the transaction is not expected to have a material impact on DBS's NAV and earnings for it's 2012 financial year. DBS rose 0.21% to $14.14 for the trading session.

DBS MB eCW121205 (QZRW) exercise level 15.00.*
DBS MB ePW121205 (Q7SW) exercise level 13.80.*

Overnight Market Wrap

First gains for S&P this week

The S&P added less than 0.1% last night. An unexpected decline in jobless claims pushed markets higher initially. The jobless claims number was at 339,000, lowest since Feb 2008. Economists had forecasted 370,000 according to the median estimate in a Bloomberg survey.

However, optimism quickly faded intraday and the S&P trended lower with technological and consumer leading the decline. Meanwhile, the global slowdown has reduced demand for American exports and the trade deficit grew from $42.5bil in July to $44.2bil in August.

Overnight Markets

Indices	Last	Change
STI	3032.66	-0.0%
HSI	20999.10	0.4%
DJIA	13326.40	-0.1%
S&P 500	1432.84	0.0%
Nasdaq	3049.41	-0.1%
China A50	7269.01	-0.7%

Corporate News

Corporate Announcements

GLP agreed to a new 10-year US$1 billion credit facility with China Merchant Bank. This secured credit facility provides borrowers at a preferential rate.

Sembcorp Industries signs joint venture with Vietnam Singapore Industrial Park Joint Venture Co. to jointly develop Gateway, a residential project in Binh Duong Province, Vietnam.

Ezra is transferring 50% of equity interest in AMC Connector AS to Aker Oilfield AS for approximately US$45.6 million. This is subject to the completion of it's OY Sale and BB-Transaction.

F&N has decided not to respond to an offer to buy its hospitality and serviced residence business.

Earnings release dates:
Fri 12 Oct: SPH (4Q12)
Wed 17 Oct: Ascendas REIT (2Q13)
Wed 17 Oct: Kepland (3Q12)
Thu 18 Oct: SGX (1Q13)
Thu 18 Oct: Keppel Corp (3Q12)
Fri 19 Oct: CapitaMall Trust (3Q12)
Tues 23 Oct: Mapletree Industrial Trust (2Q13)
Thu 25 Oct: NOL (3Q12)
Thu 25 Oct: CapitaCommercial Trust (3Q12)
Thu 25 Oct: CapitaMalls Asia (3Q12)
Mon 5 Nov: SembCorp Marine (3Q12)
Wed 7 Nov: UOB (3Q12)
Wed 7 Nov: Biosensors (2Q13)
Thurs 8 Nov: Noble (3Q12)
Fri 9 Nov: SembCorp Industries (3Q12)
Fri 9 Nov: OCBC (3Q12)

Ex-dividend dates:
Tue 6 Nov: Olam ($0.05)