SPH – Kim Eng
Buy For Still Attractive Yield
Results slightly below expectation. SPH announced its 1QFY8/13 results, which were slightly below market expectations. Top line declined slightly by 2.6% yoy to SGD326.4m. Property sector registered 2.9% yoy growth in revenue, which is offset by 2.3% decline by Newspaper and Magazine. Core earnings also declined by 9.8% yoy. However we maintain BUY rating due to still attractive and stable dividends yield, with target price of SGD4.50 based on SOTP valuation.
Core ad business likely to stabilize going forward. SPH’s core print advertisement revenue dropped by 2.3% yoy in 1QFY8/13 due to weak economy condition. However the advertising demand for property, fashion and automobile sector remains strong. We believe that ad revenue is likely to stabilize in FY13 if Singapore economy manages to recover from trough.
Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 1QFY8/13, rental income rose by SGD1.3m (+2.9%) to SGD48.2m. This was driven by higher rental rate in Paragon. Given the robust demand in Orchard area we believe there is still upside from property rental income for FY13.
Operating margin sustained at above 30%. Cost was well-managed in 1QFY8/13, only marginally increased by 1.5% yoy, thanks to low newsprint cost and low interest rate. Operating profit margin remained above 30% level and we believe that 30% OP margin is sustainable going forward.
Yield still attractive. We expect 25cents dividends for FY13 implying 6.1% dividends yield at current price of SGD4.11, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is still above historical average of 352bps. We recommend investors to keep invested in SPH, enjoy 6.1% yield while waiting for more potential exciting news such as property assets spin-off.