2010 apr 09 - dmg - m1 and starhub

4/9/20104/9/20104/9/2010 9 April 2010

Morning MattersMorning MattersMorning MattersMorning Matters

Significance of this number? Check out 'Analysing the News'.

* WTI Crude Future ** Gold Spot

Figure of the Day

Value Chg % Chg

Oil Price* (US$/bbl) 85.39 -0.49 -0.57

Gold Price** (US$/oz) 1150.55 +1.20 +0.10

US$/S$ 1.3946 -0.003 -0.08

While You Were Sleeping US markets: Positive Dow futures: +3 (as at 8am Singapore Time)

US wrap: DJIA rose 29.55 points (+0.27%) to 10,927.07. The S&P also grew, by 3.99pts (+0.34%) to 1,186.44. U.S. stocks gained on Thursday after surprisingly strong March retail sales increased optimism that the economic recovery is on track. Investors snapped up retailers' shares after top U.S. chains reported a record year-over-year increase in same-store sales for March. The sales reflected a boost in consumer demand that some investors had doubted would materialize, with job growth still anemic. Online merchant Amazon.com (AMZN.O) jumped 4.5 percent to $140.96, its highest close in four months. Among advancers in the retail space, Target Corp (TGT.N) rose 3 percent to $55.64, while Gap Inc (GPS.N) climbed 3.1 percent to $24.59. Gains in retailers' stocks eclipsed worries about Greece's debt load as the country's borrowing costs rose to new highs even as the government struggled to reassure markets it can stay solvent The Day Ahead… Market sentiment: Flat STI resistance/support: 2997/2946 Scoop of the Day: We met up with the management of Asiatravel and understand that the indefinite closure of Universal Studios Singapore's main attraction Battlestar Galactica roller coaster is likely to have an impact on the former's bottom line. Running a ferry service between hotels and the park, Asiatravel has to endure the ~S$200k/month running cost, which will only allow it to breakeven when USS is fully opened. With the expected slower revenue growth and start up costs incurred for the new project, earnings growth is likely to be lower than previously expected. We have adjusted our earnings estimate and arrived at a new TP of S$0.61 (previously S$0.78). Maintain NEUTRAL. WHAT’S INSIDE?

Analysing the News

Lian Beng Group: 3QFY10 results almost doubled YoY (SGXNET) Thomson Medical 1HFY10 net profit rises 22% (SGXNET)

On the Platter

First Resources: Low cost entry into the plantation sector (BUY) M1: Warming Up to NGNBN (BUY) StarHub: NBA for BPL (NEUTRAL)

Key Market Indices

Value Chg % Chg

Dow Jones 10,927.07 +29.55 +0.27

S&P 500 1,186.44 +3.99 +0.34

Nasdaq 2,436.81 +5.65 +0.23

FTSE 100 5,712.70 -49.36 -0.86

Nikkei 11,168.20 -124.63 -1.10

Hang Seng 21,867.04 -61.73 -0.28

Shanghai 3,118.71 -29.51 -0.94

KOSPI 1,733.78 +7.18 +0.42

STI 2,963.19 -24.91 -0.83

KLCI 1,332.93 -12.16 -0.90

Key Indicators

9 April 2010

See important disclosures at the end of this publication 2

DMG Research

ANALYSING THE NEWS

Lian Beng Group: 3QFY10 results almost doubled YoY (SGXNET)

The news: Lian Beng’s 3QFY10 earnings came in 90.6% higher YoY, hitting S$5.8m this quarter.

Revenue was up 4.7% YoY, coming in at S$82.9m. Gross profit margin improved 3.5ppt to 12.8% this quarter. Cash stood at a healthy S$49.8m as at Feb 10, representing an improvement of S$43.1m over the previous corresponding period. Our thoughts: The Group continues to enjoy brisk business activity flowing from the local private residential scene, announcing a slew of project wins since Mar - The Laurels, Centro Residences and Waterbank at Dakota. Order book stood at S$850m as at Mar 10. We see demand for construction services to remain sustained on the back of public infrastructure and private property projects rolling out. Within the sector, we like BBR (BUY, TP S$0.33), CSC (BUY, TP S$0.29) and KSH (BUY, TP S$0.38).

Thomson Medical 1HFY10 net profit rises 22% (SGXNET)

The news: Thomson Medical reported a 22% growth in 1HFY10 net profit to S$7.2m, on the back

of higher number of baby deliveries, inpatient admissions and demand for its outpatient services. Thomson Medical delivered 4,685 babies in 1H (+6.5%) and recorded higher patient load at its satellite clinics. Balance sheet remains strong, with a net cash position of S$18.8m (6.4 S¢ per share). It declared a 1.2 S¢ dividend per share for 1HFY10. Our thoughts: The addition of a senior O&G specialist in 3QFY10 could add to its hospital’s patient load and also contribute to growth. However, given the space limitation at its hospital, we feel that growth is more likely to be driven by its satellite clinics and women’s cancer centre. Thomson Medical has a network of women’s clinics across the island and intends to continue to expand this network in the neighbourhoods. The opening of its Hanh Phuc hospital project in Vietnam has now been pushed back to 1QFY11 due to some delays. We do not think this would affect its FY10 earnings as we had initially estimated most of the contribution from this consultancy project to come in from FY11 onwards. We are maintaining our BUY recommendation and TP of S$0.78.

9 April 2010


DMG Research

On the Platter First Resources: Low cost entry into the plantation sector (BUY)

Selena Leong (6232 3898, [email protected])

Terence Wong, CFA (6232 3896, [email protected])

Plantation plays have done well of late, rising some 14% since Mar 2010 on the back of a weak US$ and firm CPO price. First Resources (FR) has been lagging behind its larger peers, which we believe is unjustified, given (1) strong organic growth; (2) low cost of production of US$200/tonne; and (3) attractive valuations, trading at 12.8x P/E against industry average of 17.5x. Positive macro factors such as strong projected demand growth coupled with possibly muted supply growth (due to poor rainfall), a weaker US$ and higher crude oil prices would help support CPO prices. Maintain BUY, with a TP of S$1.40 based on 15x FY10 P/E. Industry beating oil extraction rate (OER). FR’s OER of 23.7% compares favourably against its regional peers’ 20.5 - 23.2%. This can be attributed to the maturity profile of its trees, which have an average age of 7.5 years, as well as the locations of its mills providing logistical efficiency. Its young trees fall within the peak production age, providing a platform for further production growth with minimal capex going forward.

Low cost of production beneficial. Cost of production is expected to increase by 11.1% YoY to hit US$200/tonne, due mainly to wage increase. This is nevertheless still among the lowest in the industry.

Strong global demand but potentially muted supply growth. Oil World believes that consumption of palm oil is likely to exceed production in 2010, with global production estimated at 46.8m tonnes and consumption coming in at 47.2m tonnes. This is backed by the robust consumption by the top few countries/regions in 2009 – China, India and the EU-27. Supply growth issues remain with poor rainfall affecting FFB production. Cheaper than its regional peers. We assume CPO prices to average RM2,250/ tonne in FY10 (spot prices ~RM2,600). Our core earnings estimate is IDR883.9b in FY10, up 13.4% YoY. Based on 15x FY10 P/E (24% discount to its Malaysian peers), we derive a TP of S$1.40.

FYE Dec (IDRm) FY07 FY08 FY09 FY10F FY11F Turnover 1,691,368 2,782,948 2,276,665 2,625,949 2,888,544 Net Profit 431,257 1,091,768 1,169,420 883,922 976,303 % chg YoY 76.9% 153.2% 7.1% -24.4% 10.5% EPS (S¢) 6.2 11.5 12.3 9.3 10.3 DPS (S¢) - 1.4 2.2 2.2 2.2

Div Yield (%) - 1.2 1.8 1.8 1.8 ROE (%) 13.5 26.2 21.9 13.3 13.0 ROA (%) 6.9 14.0 12.3 8.5 8.5 P/E (x) 19.1 10.4 9.7 12.8 11.6 P/B (x) 3.5 2.7 2.1 1.7 1.5 Source: Company and DMG Estimates

M1: Warming Up to NGNBN (BUY)

Singapore Research

We have tweaked our FY10/11 forecast upwards following a recent update with

management. M1’s mobile revenue was steady in January and February with evidence of a further pick-up in roaming sales on the back of the economic recovery and the opening of Resorts World Sentosa (RWS). The stock remains our top Sing telecoms exposure as it is tipped to gain most from the impending launch of the NGNBN and the potential for active capital management. We view the recent content carriage ruling by MDA positively for M1’s foray into pay-TV where it is exploring a niche delivery. Maintain BUY with upgraded TP of SGD2.55.

9 April 2010


DMG Research

Surely and steadily. We see the (i) recovery in Singapore’s economy, (ii) higher tourist flows (from the opening of the 2 IRs); (ii) generally improved business sentiment; and (iv) impending launch of the NGNBN as re-rating catalysts for the stock. Checks with management revealed that roaming revenues recovered somewhat in Jan/Feb, marking a reversal from the y-o-y decline in 4Q09, helped by seasonality. Recall that service revenue (ex handset sales) grew the strongest q-o-q for six quarters in 4Q09, driven by improving mobile revenue momentum. Capital management. Although management remained tight-lipped, we do not rule out a capital management surprise. Firstly, we see little upside risk to M1’s capex guidance of SGD100-120m for FY10, with FCF yield trending at 10%-14% for FY10/11, among the highest in our regional telecoms coverage. Secondly, M1 recently completed the re-financing of its SGD250m debt, the trigger point for more proactive management of its capital. We estimate scope for M1 to return up to 25 cents/share on top of its guided dividend payout of 80%, assuming a target net debt/EBITDA of 1.5x from 0.8x. Strong take-up for iPhone. While M1 did not disclose the number of handsets sold, it indicated that take-up is strong, driven by the combination of subscribers re-contracting and incoming churn from rival networks (M1 is the only operator that provides unlimited iPhone data download on its high-tier plan). We understand the iPhone ARPU is about 20% higher than its average postpaid ARPU of SGD60/mth. We expect M1’s data revenue contribution to hit 30% by end-2010 from 27.1% in FY09 from increased adoption of both smartphones and the iPhone. Top pick for Singapore telecoms. On the back of the improved revenue outlook, we now tweak upwards our FY10/11 core profit forecast by 3%-4%. This implies a 2-year core earnings CAGR of 5.1% versus 3.3% previously. Our target price on the stock has been raised accordingly to SGD2.55 based on DCF (WACC: 10.5%, TG-2.5%) from SGD2.30. The key share price re-rating catalyst is the upside from the impending launch of the NGNBN where intends to capture a 20% share of the fixed broadband market in 5 years.

StarHub: NBA for BPL (NEUTRAL)

Singapore Research

StarHub has announced that the pricing of its sports package will be reduced by more than half to SGD12/mth effective June 2010. It also unveiled fresh sports content which includes a multi-year contract with the National Basketball Association (NBA). Sports fans will also be treated to 3 other new channels in the form of Racket Channel (for fans of racket sports), PGA Tour on demand and Ten Sports (cricket). Paying less for other sports. The reduced subscription price is in line with the earlier pledge made by management to lower the price of the sports package by a minimum 50%. This follows the lost of the Barclays Premier League (BPL) rights to Singtel last October for the upcoming 2010-2013 season. While the NBA is fast gaining popularity, we believe the following and viewership still pales in comparison to the near cult following of the BPL in this part of the world. Based on the new pricing, existing sport subscribers stand to save 28% in monthly subscription. The implied cost per channel (for a basic entry level package) is effectively cut by 24% to SGD1.05 from SGD1.38 as illustrated in Table 1 for a total of 36 channels versus 38 channels previously. We suspect that some subscriber may even upgrade their subscription

9 April 2010


DMG Research

plans Bigger bang for the buck. Note that StarHub still has the most compelling pay-tv content across genres in Singapore which complements its widest sports coverage. Hence, the risk of its sports subscribers churning-out completely is likely to be low. As not to disrupt a typical viewing preference for a household, a StarHub subscriber may choose to spin-down to a basic package (SGD25.68 with GST) and sign-up for the EPL package on Singtel’s mio-TV and still not be worst- off with a dual subscription of SGD52.43/mth, on par with the current spending (assuming no other incidental charges and rental of set-top box). The mitigating factors here are : (i) the majority of subscribers still find incredible value and are likely to maintain their set-top box (STB); and (ii) the ruling by the Media Development Authority (MDA) requiring pay-tv operators to share content from September 2010 effectively suppressing the need to swap operators and hence STBs. In our report dated 2 Oct 200, we had surmised that the net impact on group EBITDA is <5% in the worst case scenario of a complete churn from StarHub’s sports subscribers. Maintain NEUTRAL based on target price of SGD2.20. We believe the revenue impact from lower subscription prices going forward would be offset by sharply lower content cost for StarHub given the prohibitive cost of the BPL rights. Our forecast is maintained pending the release of StarHub’s 1Q10 results next month. We see share price weakness as a buying opportunity given the generous dividend yields of over 8% offered. Our top pick for exposure to Sing telecoms is M1.

9 April 2010


DMG Research

Company Insider No. of SharesShare Price

(S$)

% Stake before

transaction

% Stake after

transaction

BRC Asia Lingco Marine 2,000,000 na 26.36 26.66

China New Town Dev Co Li Yao Min # 888,750 na 0.190 0.190

Cogent Holdings Tan Yeow Khoon 4,750,000 0.185 52.16 53.65

HLN Technologies Wa Kok Liang 134,000 na 8.17 8.27

Ramba Energy T.S.C. Cottew 7,000,000 0.255 3.538 7.076

Singapore Tech Engg Credit Suisse AG 2,500,000 na 10.95 11.03

Top Global Oei Siu Hoa @ Sukmawati Widjaja 3,320,998 na 58.61 58.75

Viz Branz Ben Chng Beng Beng 405,000 0.296 0.64 0.89

LMA International N.V. Share Buy-back 511,000 0.245 na 1.74

Sale

Advanced Systems Automation Value Capital Asset Management 71,682,000 na 5.95 1.32

Liang Huat Aluminium Malayan Banking Berhad 105,000 0.030 12.10 12.09

Pteris Global Deutsche Bank AG 2,653,000 0.195 6.03 5.47

# Exercise of Rights issue / Share Options / Convertibles / Warrants / Share Issuance.

## Married deal.

Purchase

5-Apr 6-Apr 7-Apr 8-Apr 9-Apr

US Data US Data US Data US Data US Data

Pending Home Sales (Feb) ABC Consumer Confidence (Apr 5) Consumer Credit (Feb) Wholesale Inventories (Feb)

MBA Mortgage Applications (Apr 3) Initial Jobless Claims (Apr 4)

Continuing Claims (Mar 28)

SG Data SG Data SG Data SG Data SG Data

Purchasing Manager Index (Mar) Automobile COE Open Bid Cat A (Mar 17)

Electronics Sector Index (Mar) Automobile COE Open Bid Cat B (Mar 17)

Automobile COE Open Bid Cat E (Mar 17)

Foreign Reserves (Mar)

SG Results SG Results SG Results SG Results SG Results

China Life Insurance (FY09)



Monthly Budget Statement (Mar) ABC Confidence Consumer (Apr 12) Initial Jobless Claims (Apr 11) U. of Michigan Confidence (Apr)

Trade Balance (Feb) MBA Mortgage Applications (Apr 10) Continuing Claims (Apr 4) Housing Starts (Mar)

IPI (Mar) Consumer Price Index (Mar) Industrial Production (Mar)

Advance Retail Sales (Mar) Philadelphia Fed. (Apr)

Business Inventories (Feb)

SG Data SG Data SG Data SG Data

Retail Sales (Feb) Electronic Exports (Mar)

NODX (Mar)


Foxconn International (FY09)



Leading Indicators (Mar) ABC Consumer Confidence (Apr 19) PPI (Mar) New Home Sales (Mar)

MBA Mortgage Applications (Apr 17) Initial Jobless Claims (Apr 18) Durable Goods Orders (Mar)

Continuing Claims (Apr 11)

Existing Home Sales (Mar)

SG Data SG Data SG Data SG Data SG Data

Automobile COE Open Bid Cat A (Apr 21) CPI (Mar)

Automobile COE Open Bid Cat B (Apr 21)

Automobile COE Open Bid Cat E (Apr 21)


Ping An Insurance Group (FY09) China Overseas Land (1Q10)

INSIDER TRADES HIGHLIGHTS FOR 08 Apr 10

DIARY OF EVENTS

9 April 2010


DMG Research

Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage This research is for general distribution. It does not have any regard to the specific investment objectives, financial situation and particular needs of

any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial

adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this

report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty

nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to

change without notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities, DMGAPS and its affiliates, their

directors, connected person and employees may from time to time have interest and/or underwriting commitment in the securities mentioned in this

report.

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2010 apr 09 - dmg - m1 and starhub

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