SPH – DBSV

REIT expectations provide support

  • 2Q13 lower than expectations, dragged by weak ad revenue
  • 7 Scts interim DPS declared; maintaining our DPS estimate of 24 Scts for the full year
  • Evaluation of a property REIT still in progress and is likely to underpin share price
  • Maintain BUY, S$4.75 TP

Highlights

2Q13 down on weak ads revenue. 1Q13 Singapore advance GDP estimates released on the morning of 12 Apr was a good reflection of SPH 2Q results. SPH’s 2Q13 net profit dropped by 15% y-o-y to S$71.5m, while revenue slipped by 5.5% to S$282.2m, weaker than our expectations. Interim DPS of 7 Scts was declared, similar to 1H12. We continue to expect full year DPS of 24 Scts, equating to a yield of 5.2%.

Ads impacted by cooling measures, property rental remains robust. Newspaper & magazines’ revenue fell by 7.1% y-o-y to S$224.4m due to weaker advertising revenue. Display ads fell by 10.2% while classifieds fell 7.1%, which was attributed to the property and transport sectors arising from the various government cooling measures introduced. Property rental remained robust, up by 4.5% to S$50.2m.

Evaluation for the proposed REIT still in progress, mandate not signed. Contrary to media reports, management shared that no mandate has been signed yet. The assessment for a property REIT was still ongoing, and announcements would be made going forward when there are significant developments. We continue to believe current market conditions are conducive for SPH to spin its investment properties into a REIT.

Our View

Share price supported by asset realisation, yield. We are not particularly surprised by the weak 2Q results, given the uncertain economic outlook. That said, we believe share price in the near term may face resistance and some profit taking after appreciating about 10% in the past month. But, downside should be limited, and likely to be supported by the expectation of an eventual REIT listing.

Ad revenue may pick up slightly with the economy in 2H. Our economist expects to see a slower first half, followed by a pickup in the second half for the Singapore economy. With ad revenues historically tied to economic growth and consumer sentiment, this could point to a pick up for SPH ad revenues.

Recommendation

Maintain BUY, S$4.75 TP. Maintain BUY as we believe share price should continue to remain firm on expectations of the potential REIT and will re-rate once there are positive developments going forward. We trimmed our FY13F earnings slightly by 3.4%, on the back of weaker ad revenue in 2Q. Our sum-of-parts TP is adjusted marginally to S$4.75.

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