SPH – DB

Property & investment income impact otherwise in-line 2Q

SPH’s 2Q08 results were operationally solid with core revenues and EBITDA in-line with our expectations. But NPAT was impacted by significantly lower than expected investment income & Sky@Eleven recognition.

Specifically, although 2Q advertising revenues were seasonally lower QoQ, they increased +11% (+S$18m) YoY to S$180m driven by YoY growth in both classifieds & displays. Total 1H08 advertising revenues in-line at 49.8% DB FY08F. 2Q08 circulation revenues remained flat QoQ & YoY at $51m. As such, 2Q08 revenues (exc Sky@Eleven) increased +9% YoY to S$274m, as per expectations (1H08 revenues exc Sky@Eleven 49.8% DB FY08F).

Similarly, although costs increased slightly faster than revenues, the rate of growth was within our expectations as increases in staff costs (3yr high headcount & +4% in average per staff costs) were offset by declines in newsprint costs (on lower consumption and paper costs). Excluding Sky@Eleven, 2Q08 EBITDA increased +12% YoY to S$111m (a 40% EBITDA margin). In fact, total 1H08 EBITDA (exc Sky@Eleven) was 52% DB FY08F.

But low investment income performance dragging NPAT

But 2Q08 NPAT impacted by very low investment income which resulted in 2Q08 NPAT declining -6% YoY to S$99m despite strong operational performance (profit pre-investment income +36% YoY). The S$5m investment income (1Q08 S$10m) was the lowest in 4yrs and compares to DB FY08F S$90m. In addition, 1H08 NPAT was constrained by SPH booking just S $24m revenues in 2Q08 from Sky@Eleven – the project is currently behind schedule. Total 1H08 Sky@Eleven revenues (S$40m) were 18% DB FY08F (S$229m).

As such, 1H08 NPAT (S$211m) represented just 39% DB FY08F (S$543m) but we expect greater Sky@Eleven revenue recognition in 2H08 and the inline operational performance continues to under-pin.

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