SPH – DBSV

Rising cost caps profit growth

2Q within expectations, but watch for rising cost

Ad revenues registered growth, albeit at slower rate

Clementi Mall fully let, a good mall notwithstanding its price; expect to achieve S$14 psf avg rents

Trim earnings by 4%/1% on higher costs; Maintain Hold, TP: S$4.20. 6% dividend yield should support price.

2Q10 results within expectations. 2Q net profit ended at S$75.4m (-33.5% yoy, -16% qoq) mainly due to absence of Sky@Eleven (Sky11) development profits and effect of cost increases. Revenue dipped by 5% yoy to S$287.8m. Excluding the effect of Sky11, revenue would have grown by 7.5% yoy. As expected, total print ad revenues growth slowed to 6.6% in 2Q11, with flat performance from Classifieds but lifted by Display ads (+8% yoy) and Magazines (+20%). Due to higher staff costs, newsprint charge-out rates and others, 2Q11 EBIT margin fell to 31% vs 2Q10’s 36% (excluding Sky11’s contribution). Interim DPS of 7 Scts was declared.

Clementi Mall: Average rental of S$14psf achieved. Clementi Mall is expected to achieve average rental rate of S$14 psf when fully operational by the financial year-end. This compares favourably with other sub-urban malls such as NorthPoint and Causeway Point (~S$10 – 12.50 psf pm), but below Tampines Mall and Junction8 (~S$14.50 psf pm), which are more matured. Our weekday visit last week showed that crowd was decent, and the opening of the bus interchange should provide more footfalls. We understand management will continue to look out for more investment properties, particularly retail malls.

Trim earnings on higher costs; Hold, TP: S$4.20. We lowered our forecasts by a marginal 4% /1% for FY11F/12F, on higher staff costs and newsprint charge-out rates (US$670/mt). Our sum-of-parts TP is lowered to S$4.20 (previously S$4.37). Despite growing top-line, higher costs will cap bottom-line growth. Maintain Hold, share price will be supported by its attractive dividend yield of 6%, based on our 24 Scts DPS forecast for FY11F.

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