SPH – OSK DMG

Print Business Loses Its Edge

SPH announced full-year revenue of SGD1.22bn (-2.0% YoY) and PATMI of SGD404.3m (-6.2% YoY), broadly in line with our estimates. We see weakness in its core business as companies switch to online advertising from its traditional advertising platform. We keep our SELL call and SOP-based TP remains at SGD3.57 (14.4% downside), premised at 17.0x FY15 P/E and implying 6.2% FY15 dividend yield.

  • Pessimistic outlook for its publishing business. Revenue from SPH’s newspaper and magazine (N&M) segment slid 6.0% YoY to SGD931.7m in FY14 (Aug). This was mainly driven by the decline in its advertising and circulation revenue, which were down 6.8% and 4.9% YoY respectively. We continue to hold a bleak view on its publishing segment as its clients are switching to better and cheaper alternatives to advertise on the internet via social media platforms such as Facebook.
  • SPH REIT (SPHREIT SP, NR) provides a strong and stable income stream. The REIT’s portfolio, consisting of Paragon and Clementi Malls, has proven to be resilient as both assets maintain full occupancy rates. Revenue from SPH’s property segment inched up by 3.5% YoY, underpinned by a positive rental reversion of 8.5% and lower property expenses. Moving forward, we think that the portfolio could continue to provide stable support to its core business.
  • Seletar Mall a near-term catalyst for its property division. In addition to its REIT’s contributions, the new opening of Seletar Mall – which recorded >90% pre-committed leases – in the next quarter could provide an additional income stream for the business. We think that the suburban mall will be able to attract good-quality tenants as residences within the area are underserved by retailers. (Seletar Mall has c.320,000 residences nearby vs Clementi Mall’s c.200,000)
  • Maintain SELL. Despite the expansion in its property division, its core business continues to be a laggard. We maintain our SELL recommendation, while our SOP-based TP remains unchanged at SGD3.57, implying a 17.0x FY15 P/E and a 6.2% FY15 dividend yield.

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