SPH – Kim Eng

Cash is King

Respectable results. SPH announced its 3QFYMay12 results, which were broadly in line with market expectations. Top line registered a 0.9% yoy growth, driven by strong performance from the Property segment (+12.8% yoy) despite marginally decline from Newspaper & Magazine segment (-0.6% yoy). Core earnings increased by 2.2% yoy. Maintain BUY with target price of SGD4.43, based on SOTP valuation.

Core ads earnings remain stable. Print advertisement revenue remained stable with a marginally increase of SGD0.7m (+0.4% yoy) driven by 2.9% growth in Display ads. Circulation revenue declined in line with market expectation by SGD2m (-3.6% yoy) but circulation levels were maintained at an average of 1m copies daily.

Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 3QFY12, rental income rose by SGD5.5m (+12.8%). This was driven by higher rental rate in Paragon as well as contribution from full operation of Clementi Mall.

Operating margin sustained at a healthy 33.5%. Average newsprint cost declined for the second consecutive quarter to USD677/ton from USD690/ton last quarter. Staff cost increased by SGD6m (+6.8%) due to increased headcount from the acquisitions. Operating margin was sustained at 33.5%, marginally improved from last year. Net profit of SGD100m was 13.1% less compared with a year ago. It is mainly because of a 60% decline in investment income due to mark-to-market losses in volatile market condition, which to us is not very worrying.

Maintain BUY, with SOTP TP of SGD4.43. We maintain our BUY call on SPH with SOTP TP of SGD4.43. We believe a potential spin-off of its retail assets will add value to shareholders. Valuation is not expensive at 15.6x FY13F PE and 3.0x FY13F PB given SPH’s monopoly position in media business. Downside should be protected by 6.5% dividends yield.

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