DBS Equity Research: Wired Daily 25 Nov 2015

kiasutrader

Publish date: Thu, 26 Nov 2015, 01:18 PM

Singapore Telecom Sector - Maintain Fully Valued on M1 and StarHub. We forecast flattish earnings for both companies in FY16F followed by low-single-digit earnings decline from FY17F onwards.

Pay-TV players in US have been losing subscribers to Netflix and other over-the-top (OTT) players, resulting in lower profitability. On the other hand, Pay-TV players in UK have been able to grow their subscriber bases despite Netflix's presence. One of the key reasons is thatNetflix's content in US is more diverse and comprehensive than in UK. Singapore Pay-TV players are likely to be resilient in the medium term as Singapore is a much smaller market with robust free-to-air TV, and regulatory requirements may add further costs to Netflix. However, channel aggregator model of Pay-TV players is at risk in the long term as individual channels go online. We forecast flattish earnings for both the companies in FY16F followed by low-single-digit earnings decline from FY17F onwards. Our DCF-based TPs of S$3.30 for StarHub and S$2.60 for M1 imply target dividend yields of 6% (5.5% currently) and 6.6% (6.1% currently) respectively, given weak growth prospects.

Marco Polo Marine has started the legal process to seek a refund of at least US$21.4m from Sembcorp Marine after the cancellation of a contract for a jack-up rig. Marco Polo had on Nov 17 issued SembMarine's subsidiary PPL Shipyard a notice of termination of the contract, after the latter allegedly failed to comply with certain obligations.

Singapore averted a technical recession in the third quarter of 2015 - thanks to a significantly stronger-than-expected performance by the services sector. With seasonal adjustments and on an annualised basis, the Singapore economy expanded 1.9% quarter-on-quarter - a reversal from the 2.6% contraction in Q2. This is in contrast to an earlier flash estimate of just a 0.1% expansion, and the market's forecast of no growth. The government's full-year growth forecast, however, has been adjusted downwards to "close to 2%", compared to its earlier projection of 2-2.5%. On a year-on-year basis, the economy grew a betterthan-expected 1.9% in Q3, despite a sizeable contraction in the manufacturing sector.

Singapore's manufacturing sector was the only sector that posted a contraction in the third quarter of this year, at 6.2% y-o-y, while the wholesale and retail trade sector posted the strongest showing at 6.8% y-o-y. The sector's contraction was primarily due to a fall in the output of the transport engineering, electronics and precision engineering clusters. Growth in the wholesale and retail trade sector was primarily driven by the wholesale sector.

Worsened performance in Singapore's third-quarter trade has led trade promotion agency International Enterprise Singapore to trim its 2015 year-on-year growth forecasts for trade and non-oil domestic exports (NODX) for a third time.

Total merchandise trade is tipped to fall between 10.0 and 10.5% for the full year, down from earlier forecasts of 5-7 and 9.5-10.5% declines. NODX growth is expected to be 0.5-1.0%, adjusted down from 1-3 and 1-2%. The latest down revisions came after third-quarter trade slipped 8.5% and NODX dipped 3.0%. Second-quarter trade plunged 10.7% while NODX fell 2.1%.

US stocks recovered from early losses amid signs that Russia is not likely to initiate a military response to Turkey's downing of Russian warplane near Turkey's border with Syria. The latest tension in the Middle East lifted oil and gold prices.

Source: DBS

StarHub (CC3)MarcoPolo Marine (5LY)

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