By Carmen Lee
Thu, 5 Feb 2009, 08:22:50 SGT

Market Pulse: Telco Sector & Cacola (5 Feb 2009)

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Telco Sector: Resilient Earnings Expected

Summary: SingTel and StarHub are due to report their earnings on 10 Feb and if M1’s results were anything to go by, we expect them to report similarly resilient earnings. We expect SingTel to show a slightly QoQ decline (<5%) in its 3Q09 revenue, as the economic slowdown takes a slight toil on its business. However, net profit could show a bigger decline, mainly due to reduced contributions from its associates. We are looking for StarHub’s 4Q08 revenue and earnings to show marginal QoQ improvements (<5%), thanks to its bundling capabilities, which should continue to offer value in the current economic climate. Even though we are penciling in modest declines in both revenue and earnings for all three telcos this year, but these declines pale in comparison to the expected tumble in earnings of companies reliant on discretionary spending. Hence we still expect telcos to show relative outperformance this year, backed by their attractive dividends (M1 and StarHub). As such, we maintain Overweight on the sector. (Carey Wong)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Cacola Furniture International Ltd: Warns of lower profits in FY08

Summary: Cacola Furniture International Ltd (Cacola) has released a profit guidance, stating that FY08 profits would be lower than that of FY07 due to a “specific bad debt provision made on trade receivables”. No further details were provided. We believe that bad debt could have arisen due to the global credit crunch, which has not spared distributors in China. As of Sep 08, Cacola’s trade receivables stood at RMB80.7m, or 69% of the group’s 9M08 net profit. The latest profit guidance implies that its 4Q08 net profit could slide by over 76% YoY, since its 9M08 earnings have already grown 23% to reach RMB116.4m, just slightly shy of the RMB123.3m profits recorded in FY07. In light of this latest development, we are putting our previous HOLD rating and S$0.095 fair value estimate under review. The group is slated to announce its FY08 results before 1 Mar 09, during which more details will be provided. (Lee Wen Ching)

NEWS HEADLINES

- Fears of a global trade war receded somewhat yesterday as US President Barack Obama promised to soften the “Buy American” stance indicated in an US$800b stimulus plan.

- Labour Chief Lim Swee Say said the Jobs Credit Scheme is a powerful remedy but should not be seen as a “wonder drug” that would result in zero retrenchments.

- A unit of NOL and the Port of Salalah announced a 50-50 joint venture to operate a new two-berth container terminal.

- The Lexicon Group is buying over a commercial property development business in China under a S$160m reverse takeover deal.

- City Developments has dismissed market rumours about its plans for a rights issue.

- Allgreen Properties, with other companies, has agreed to submit a joint bid for two sites in China’s Tangshan City.

- Noel Gifts reported a 73% plunge in net profit to S$157k for 1H09 despite a 29% rise in revenue to S$9.4m. It also warned of a possible loss for FY09.

- Natural Cool, an air-conditioning service company, has struck a deal for a S$4m loan from Frankland Investments Ltd.

- Global Voice Group will issue 432.3m new shares to EUN Partners V LLC for a total of S$6.3m under a subscription agreement.

- SP Corporation posted a 37% fall in revenue to S$121.6m for FY08 but enjoyed a 365% rise in after-tax profit to S$1.5m after adjusting for a one-off non-cash exchange loss of S$1.2m related to a dormant subsidiary in 2007.