SPH – Kim Eng
Steady on all fronts
• Singapore Press Holdings’ (SPH) 2QFY Aug11 revenue met consensus forecast at $287.8m. However, operating profit was lower than expected at $78.9m due to gestation loss from Clementi Mall and the increase in newsprint and staff costs. The Group declared a dividend per share of 7 cents and we believe the steady demand for display advertisement will continue to underpin its dividend yield of 5.6%. Maintain BUY with a target price of $4.68.
• Some tenants in the basement and on the first floor of Clementi Mall have commenced operations. Management expects the mall, which is 60%-owned by SPH, to be fully operational by 4Q11. Until then, minor gestation loss is still expected. At an average rental rate of $14 psf pm, we estimate the mall will account for about 20% of SPH’s total rental revenue.
• In the core media business, display advertising revenue continues to drive the growth of the newspaper and magazine segment (+5% YoY). Management raised the guidance for average newsprint cost (+8% vs our estimate) due to the gradually rising newsprint spot price but the cost pressure is mitigated by favourable foreign exchange exposure.
• The possibility of a successful participation in the Government Land Sales programme could be a near-term positive catalyst for the group. The white site at Boon Lay Way, next to Jurong East MRT station, seems to be a suitable target, in our view. (Tender submission date: 25 May). We also anticipate the launch of fee-based applications on tablet PCs in the next 12 months, which could enlarge SPH’s revenue stream.
Action & Recommendation
We lower our FY Aug11F-12F net profit by 5-6% to take into account the higher newsprint costs. Our SOTP-based target price is reduced from $4.75 to $4.68. To reflect the earnings revisions, our full-year DPS forecast is lowered from 23.4 cents to 22.2 cents. Maintain BUY.