Lower dividends as expected

Media continues to be impacted by a weak advertising climate, leading to a fall in regular dividends. However, the cash from SPH REIT provides management with a war chest for property development, the success of which will be key to growing shareholder's wealth.

FY13 core earnings forms 94% of our full-year estimates. We deem it in line as the slight miss was due to a fall in investment income. Recurring earnings formed 100% of our estimates. We tweak FY14-15 forecasts on housekeeping matters, and introduce FY16 numbers. Our SOP-based target price rises as we roll over to end CY14. We maintain our Neutral rating.

FY13 highlights

Full-year core earnings fell 15% yoy on 1) lower newspaper revenues (-3.9%) due to the decline in advertising (-4%) and circulation revenues (-3.6%), 2) higher interest expense from the debt taken on at SPH REIT and 3) lower investment income.

Operating expenses rose (+3% yoy) due to writedowns relating to an overseas magazine subsidiary, but this should decrease as cost savings to the tune of S$19m was unveiled for 2014. Though there are no signs of a pick up in advertising revenues yet, the slight positive was that 4Q advertising revenues decline appears to have moderated. Property continues to do well with 3% rental increases coming from Paragon. Seletar Mall has secured Shaw Theatres, NTUC Foodfare and FairPrice Finest as anchor tenants.

S$100m new media fund

SPH is targeting acquisitions of new media start-ups to enhance its online offerings to advertisers. This leaves S$657m of the cash raised for property development.

22 Scts regular dividends

This is lower than FY12's 24 Scts. Management has guided that future dividends will depend on recurring earnings and that it will not dip into its cash balance. This means that investors should not expect a return to the 24 Scts level anytime soon, considering the loss of 30% property income.

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