MARKET PULSE: Starhub, SIA & Valuetronics (3 Feb 2012)

Stock Name: StarHub
Company Name: STARHUB LTD

Research House: OCBC

Price Call: BUY

Target Price: 3.10

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: OCBC

Price Call: HOLD

Target Price: 10.85

Stock Name: Valuetronics
Company Name: VALUETRONICS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.29

MARKET PULSE: Starhub, SIA & Valuetronics

3 Feb 2012

KEY IDEA StarHub Ltd: BUY with higher S$3.10 fair value StarHub Ltd reported better-than-expected 4Q11 results, with revenue coming in 7% and net profit 28% above our forecasts. For FY11, revenue and earnings were 2% and 7% higher than expected. It has also declared a quarterly $0.05/share dividend as guided. For 2012, management expects operating revenue to grow in the low single-digit range, while service EBITDA margin to be around 30%. It also expects to spend around 11% of operating revenue as capex; this also includes maintenance capex to meet the IDA's recently-announced stricter service requirements. And as before, it will maintain its S$0.20 per share dividend, or S$0.05 per quarter. We have modestly bumped up our FY12 earnings estimate by 4% to account for the margin improvement. And in line with its latest capex guidance, our DCF-based fair value improves from S$3.00 to S$3.10. While StarHub was the best performing telco stock in 2011, we continue to like its defensive earnings and attractive dividend yield. Maintain BUY. (Carey Wong) MORE REPORTS Singapore Airlines: Expensive fuel causing turbulent times Singapore Airlines (SIA) last night reported its 3QFY12 revenue grew 1% YoY to S$3.9b but PATMI fell 53% YoY to S$135m. Persistently high jet fuel prices caused SIA's fuel costs to jump 35% YoY to S$1.5b. All of SIA's business segments contributed lower operating profits from a year ago. The parent airline (Singapore Airlines) recorded an operating profit of S$137m, from S$378m a year ago. SIA Engineering's operating profit shrank 18% YoY to S$28m, while SilkAir's operating profit decreased 29% YoY to S$32m. SIA Cargo reported an operating loss of S$40m, swinging from an operating profit of S$48m in 3QFY11. Pending today's briefing with management, we put our fair value estimate of S$10.85/share and Hold rating on SIA UNDER REVIEW. (Eric Teo) Valuetronics Holdings: 3QFY12 earnings above expectations Valuetronics Holdings Limited (VHL) reported its 3QFY12 earnings which exceeded our expectations. Revenue of HK$617.2m represented a 17.7% YoY increase but a 1.6% QoQ decline. Net profit was flattish at HK$31.5m versus HK$31.6m in the preceding year but rose 9.5% QoQ. Excluding one-off items, we estimate that net profit for 3QFY12 would instead have declined 13.8% YoY and increased 24.1% QoQ, but still higher than our expectations. For 9MFY12, revenue increased 23.1% to HK$1.8b, meeting 76.6% of our full-year projections; while reported net profit declined 1.3% to HK$91.9m and formed 78.7% of our FY12 estimates. The group experienced strong revenue growth in its OEM and Licensing business during the quarter, but this was partially mitigated by a 15.7% YoY fall in revenue from its ODM segment. Moving forward, management remains cautious on the uncertain macroeconomic landscape and rising cost pressures. We will provide more details after a teleconference call with management. For now, we have a BUY rating and S$0.29 fair value estimate. (Wong Teck Ching Andy)

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NEWS HEADLINES - The S&P 500 Index added 0.1% as a drop in jobless claims raised optimisms about the economy ahead of employment data to be released today. Oil fell to a six-week low as US supplies climbed and demand dropped. - Chinese Premier Wen Jiabao told German Chancellor Angela Merkel that China is considering contributing to the euro-area's bailout programmes through the IMF. - Eu Yan Sang International announced today that its wholly-owned subsidiary has entered into a conditional asset sale with Healthzone Ltd, which is under receivership, to expand and broaden its products penetration into the Australian markets. - Keppel Corporation announced that, with effect from 1 Feb 2012, it has increased the limit of its multi-currency medium term notes Programme from US$600m to US$1.2b. This is not expected to have any material impact on NTA or EPS for FY2012.