SPH – DMG

Slightly weaker ending quarter

Slightly below our expectations; 4QFY12 recurring earnings fell 17% YoY. 4QFY12 recurring earnings of S$86m (-23% QoQ) came in slightly under our expectations due to lower than expected N&M advertisement revenue. FY12 recurring earnings were up a marginal 0.3% to S$410m. We lowered our FY13 PATMI by 7% due to lower advert revenue and higher operating expenses. SPH has declared a final dividend of 17S¢ a share bringing total dividends for FY12 to 24S¢ a share. Going forward we believe SPH’s cash flow is strong enough to sustain a dividend payout of 24S¢ per annum, implying a yield of 5.9%. Maintain NEUTRAL with slightly higher SOTP TP of S$3.95 (from S$3.85 previously) as we roll forward our valuations to FY13. We think SPH’s FY13 dividend yield of 5.9% remains attractive and will cushion any downside in share price, though we see a lack of near term catalysts to drive upside for its core publishing business.

Property segment offset decline in N&M. Property rental income grew 14% in FY12 to S$191m due to a 101% growth in rental income from Clementi Mall to S$37m (on the back of a full year’s operations), as well as a 3% increase in Paragon’s rental income to S$154m (due to higher rental rates). This helped offset weaker Newspaper and Magazine revenue which declined 1% due to weakness from both print adverts as well as circulation revenue. The Seletar Mall, SPH’s latest property project is expected to be completed by end 2014.

Slowdown in Newsprint charge-out rate could bring some cheer. Newsprint charge out rates averaged US$678/MT in FY12 and US$654/MT in 4QFY12. SPH will benefit from current lower rates which are hovering at ~US$600/MT. As such, we have lowered our FY13 charge out rate assumptions by 10%.

SOTP-derived TP of S$3.95. We value the core media segment based on 11x FY13 P/E, Paragon (S$2.5b) 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.

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