SPH – DMG

Challenging times

SPH’s results came in slightly below our expectations, with 1QFY13 recurring earnings down 9.8% YoY to S$109m (+26.7% QoQ) due to lower than expected revenue from the N&M advertisement and other businesses segments. Other operating expenses had crept up by 15.4% to S$33m during the period but remain within our forecasts. On the back of a challenging domestic outlook ahead, we lower our FY13 PATMI by 7% on lower advertisement and other business revenue. Though earnings expectations have been moderated, we believe SPH’s cash flow remains strong enough to sustain a dividend payout of 24S¢ per annum, implying a yield of 5.8%. We believe its FY13 dividend yield of 5.8% remains attractive and will limit share price downside. Maintain NEUTRAL with lower SOTP TP of S$3.80 (from S$3.95 previously).

Challenging outlook for non-rental businesses. 1QFY13 N&M advertisement revenue had declined 2% YoY to S$205m. With the government’s expectation of a moderate GDP growth forecast of between 1-3% ahead, we lower our FY13 N&M advertisement revenue forecast by 2.7%. SPH’s other business segment revenue fell 34.3% YoY during the period to S$10.4m. This was mainly due to the timings of the exhibitions business of which certain shows were brought forward to 4QFY12. We have consequently lowered our FY13 revenue by 18% for this segment. On a brighter note, rental income remained strong, growing 3% YoY to S$48.2m on the back of higher rental rates from Paragon.

Lower newsprint costs partially cushioned increase in other operating expenses. Newsprint charge out rates were down 7% YoY to US$644/MT (-2% QoQ) in 1QFY13. This helped to partially offset against higher other operating expenses which grew 15% YoY to S$33m mainly due to increased business activities for the online businesses, which we expect to be a growing segment going forward.

Maintain NEUTRAL, dividend yield to support share price. 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 as at Nov 12.

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