SPH – Kim Eng

Stellar 1HFY10 results

Key meeting takeaways

SPH’s 1HFY10 operating profit jumped by 29.4% yoy to $286.8m on strong performance by the Newspaper and Magazine segment, lower newsprint costs and higher revenue from Sky@Eleven. Net profit grew by 61.2% yoy to $258.0m, turning net loss from investments into a gain. Overall, the results were in line with our expectations. An interim dividend of 7 cents was declared. Maintain Buy with higher target price of $4.61.

Our View

Revenue from the Newspaper and Magazine segment grew by 2.6% to $465.9m in 1HFY10, in line with the positive trend in news ad revenue growth. In 2QFY10, display ad revenue grew by 20.2% yoy, led by demand from the property, telco and FMCG sectors. Classified ads grew by 6.4% yoy, dragged down by weakness in the auto sector.

Sky@Eleven will obtain TOP soon. A remaining $77m in revenue will be recognised in due course. As the project was on the deferred payment scheme, the bulk of the proceeds (about $423m) will be received upon TOP, replenishing SPH’s investible fund of $0.8b.

With one‐third of its $1b multicurrency bond program unutilized, SPH remains financially capable of exploring new opportunities. Apart from its four strategic growth thrusts, a separate strategy for the property division spelling out its aim to establish a presence in the retail mall sector for the long term and capitalizing on future opportunities in the residential segment supports our view of a potential spin‐off of its retail assets or a property arm.

Action & Recommendation

SPH now offers an attractive dividend yield of 6.4% (FY10F DPS 25.3 cents). Post‐Sky@Eleven, we believe a sustainable yield of 5% will be supported by its monopoly in the print media business and stable income from its retail investment properties. We raise our target price to $4.61, from $4.47, as we lower our cost‐of‐debt assumption and remove the Clementi Mall valuation estimate. Maintain Buy.