SPH – DBSV
Hit by one-off payments
- 2Q14 results were below expectations, hit by lower ad revenues and higher staff bonus payments
- Declared 7 Scts interim DPS, similar to 1H13
- Revised FY14F/15F earnings by +4%/-12%; cut TP to S$4.14, downgrade to HOLD on muted outlook
Results miss expectations. This was on the back of lower revenues and higher staff costs. Headline net profit grew 8% y-o-y to S$81.3m but this was helped by S$52.9m one-off gain from the sale of partial stake in the regional online classified business. Excluding this, net profit was only S$28.4m largely due to higher staff costs (+$17.8m), a one-off impairment charge for the removal of a press line (S$9.9m), and impairment charge for investments (S$6m). On the positive side, SPH declared 7 Scts interim DPS, similar to 1H13.
Newspaper ad revenue remained weak. Group revenue dipped 1.2% to S$278.8m due to weaker contribution from newspaper and magazines (-5.7%), partly offset by higher property contribution (+3%) and ‘Other’ segment. Newspaper ad revenue fell 7% y-o-y following a 7% and 7.9% drop in display and classifieds ads, respectively, on weaker contribution from property and auto segments.
Higher staff costs (+18%) a surprise. Staff costs surged 18% y-o-y to S$101.1m in the quarter because of a one-off special bonus payments for prior year (S$10.4m) arising from REIT profits and revised bonus computation as incentive to drive growth. We expect the bonus payments to largely negate cost savings initiatives that are projected to reap S$19m in annual savings.
Downgrade to HOLD; cut TP to S$4.14. We revised FY14F/15F earnings by +4%/-12% after factoring in weaker than-expected ad revenues and higher costs, and the S$52.9m extra gain in FY14F. This reduced our sum-of-parts TP to S$4.14. The Group’s core ad revenues will remain muted, which suggest limited earnings upside. But the share price is supported by a strong balance sheet with S$1.7bn cash and investments and 5.2% yield.