SPH – Kim Eng
All eyes on bulging cash hoard
• Singapore Press Holdings (SPH) recorded revenue of $1,381.1m for FY Aug10, beating consensus and our estimates. But operating profit of $539.1m was 5% shy of our expectations due to higher staff bonuses. A final dividend of 20 cents per share was declared, giving shareholders a slightly higher‐than‐expected reward. Along with the interim DPS of 7 cents, the total yield amounts to 6.4%. Maintain BUY with the target price raised from $4.62 to $4.70.
• A jump in display and recruitment advertisements spawned 14.2% YoY growth in print advertisement revenue. Circulation revenue, however, continued to head south (‐2.4% YoY). To boost circulation, SPH is offering giveaways to draw new subscribers and retain existing ones. Nevertheless, the demand for print advertisement in FY Aug11F remains buoyant due to consumption growth.
• To enhance cost efficiency, SPH has adjusted its pagination for The Straits Times since August to optimise the layout for news reports and display ads. This initiative has reduced newsprint consumption, thus helping to offset the expected rise in newsprint prices. The new layout also allows the group to create more value for advertisers.
• Sales proceeds from Sky@Eleven has increased SPH’s investible fund from $0.8b to $1.5b. We believe its next bidding target could be the white site beside the Jurong East MRT station under the Government Land Sales programme. This area may be developed into a retail/commercial project. If an acquisition does not materialise, SPH could repay a $570m loan and still return surplus capital to shareholders as profitable investments become scarce.
Action & Recommendation
Our dividend forecast of 17.3 cents for FY Aug11 is based on a 90% payout. Our target price is raised slightly to $4.70 and we view value enhancing property acquisitions as positive catalysts. Maintain BUY.