SPH – Kim Eng

The bellwether delivers

Event

• Singapore Press Holdings’ (SPH) 1QFY Aug11 revenue met consensus forecast at $321.4m. However, operating profit slid 27% YoY to $116.3m in the absence of property development profits and higher staff costs. Nonetheless, we believe the core media business will continue to underpin its stable dividend yield of 5.9%. Maintain BUY with a target price of $4.75.

Our View

• The Newspaper and Magazine segment recorded a credible increase in revenue of 9.2% YoY and 9.6% QoQ to $265.5m, driven by higher display and recruitment advertising revenues. Margins contracted slightly on rising newsprint prices, but lower newsprint consumption as a result of improved print technology mitigated the impact.

• Rental income from Paragon grew 26% YoY to $36.8m thanks to positive rental reversions and an enlarged net lettable area. Clementi Mall, to be fully opened in April 2011, is expected to secure full tenancy. To date, 85% of retail space has been taken up. We expect rental income to make up a higher proportion of group revenue in FY Aug11 (12% vs 9.7% in FY Aug10).

• SPH remains financially strong with an investible fund of $1.4b. With as many as five commercial sites in suburban areas available under the Government Land Sales programme, a land acquisition could be on the cards. However, competition for commercial sites will be intense and shareholders could be rewarded with a return of surplus capital if an acquisition does not materialise.

Action & Recommendation

We raise our revenue and net profit forecasts for FY Aug11 by 8% and 21%, respectively, to reflect higher rental expectations from Clementi Mall and betterthanexpected performance from the core media business. We also increase our FY Aug11F DPS to 23.4 cents (from 17.6 cents) based on a 100% payout (previously assumed 90% payout). Maintain BUY with a target price of $4.75.

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