SPH – DMG

Property segment continues to support growth

In-line; 3QFY12 recurring earnings grew 2.2% YoY. 3QFY12 recurring earnings of S$113m (+25% QoQ) accounted for 25% of our full year estimate. However 3QFY12 PATMI was down 13% YoY to S$100m due to a 60% YoY decrease in investment income (from fx related losses and lower dividend income). Property segment contributed to growth with rental income up 13% YoY with higher contribution from Clementi Mall and higher rental rates from Paragon. We tune downwards our FY12/13 PATMI estimates by 2%/1% due to lower Newspaper & Magazine (N&M) segment income partially offset by higher property related income. Maintain NEUTRAL with lower SOTP TP of S$3.85 (from S$3.91 previously). SPH’s FY12 dividend yield of 5.9% remains attractive though we see a lack of near term catalysts that could lead to share price upside.

We expect N&M to be weaker on slower domestic economic outlook. N&M advertisement revenue is correlated to Singapore’s economic performance. On 13 Jul 12, our OSK|DMG economics team trimmed our Singapore 2012 GDP growth forecast by 1.4ppt to 2.6% (see report titled “Singapore: Growth Momentum Slowed in 2Q12”). We correspondingly lower our FY12/13 N&M ad revenue by 3.5%/4.6%. On a positive note, falling newspaper circulation volume creates somewhat of a natural hedge seen through a 5.1% YoY decrease in 3QFY12 newsprint costs.

Property segment supporting growth. Rental income was up 13% YoY to S$49m due to a fully operational Clementi Mall and higher rental rates from Paragon. Acquisition of the Sengkang commercial site was completed in Apr 12, and the prospective mall is expected to become operational from 2015 onwards.

SOTP-derived TP of S$3.85. We value the core media segment based on 11x FY12 P/E, Paragon (S$2.4b) with assumption of a 5% revaluation gain, Clementi Mall (S$266m) with assumption of average passing rent of S$15/sqft, cap rate of 5.5%, M1 and Starhub at DMG TP and investments as at May 12.

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