Author: kktan
SPH – DBSV
Low growth but reasonable yields
• Core 3Q earnings in line with expectations
• Muted growth on cautious GDP outlook
• Dividend yield remains attractive at 6%
• Maintain Hold, TP unchanged at S$4.01
Highlights
Core 3Q results in line. Headline net profit fell 11.5% y-o-y to S$99.8m, slightly below our expectations, largely due to lower investment income (S$9.5m, -60%) and higher staff costs (S$94m, – 6%) as a result of bonus provisions. Core operations were otherwise resilient with revenue growth of 1%, helped by strong property rental revenue (S$48.7m, +13%). Despite worries about the global economy, print ad revenues remained resilient and registered marginal growth of 0.3%. This was offset, however, by slowing circulation revenue (-3% y-o-y to S$52.4m).
Revenue from the newspaper and magazine segment stayed relatively flat at S$261m vs S$263m in 3Q11. 9M12 earnings of S$281.4m now account for 72% of FY12’s earnings forecast, in line with expectations considering lower earnings, due to lower investment income. Investment income was strong in FY11 due to non-recurring recovery of losses arising from the Lehman crisis.
Our View
Growing rental income is key to growing volatility in media sector. We see SPH’s growing rental income as a key bulwark against potential volatility in ad spend and weakening circulation. The property segment now contributes 15% of revenues (13% last year) and 22% of profit before tax (14% last year). In contrast, newspaper and magazine’s PBT declined from S$95.7m to S$91.6m. The property segment has therefore become increasingly important in mitigating earnings volatility in the media segment, even as GDP expectations for Singapore this year are not expected to outpace last year.
Earnings growth likely to be muted, in line with Singapore’s cautious GDP growth expectations. Our DBS economist is forecasting GDP growth at 3.5% vs 4.9% last year. Since ad spend correlates well with Singapore’s GDP growth, we remain conservative over such growth in the coming quarters. We have imputed 2% growth in Ad Ex in FY13F, a marginal growth from our forecast of a 0% growth in FY12F.
Recommendation
Maintain Hold for 6% yield, TP unchanged at S$4.01. Even though growth may not be exciting, the stock is still attractive for its dividend yield of 6%. We therefore maintain HOLD with our sum-of-parts derived TP unchanged S$4.01.
SMRT – TODAY
SMRT fined S$2 million
Money to be donated to Public Transport Fund to help needy; SMRT has 14 days to appeal
For its failures resulting in the December train disruptions, public transport operator SMRT was yesterday slapped with the maximum fine of S$2 million by the Government.
The disruptions on Dec 15 and 17 affected more than 200,000 commuters. In a statement announcing the penalties, the Land Transport Authority (LTA) said the money will be donated to the Public Transport Fund to help needy families with transport fares.
SMRT has 14 days to appeal, and the operator – which had already lost S$4.4 million because of the disruptions – declined to comment in response to TODAY’s queries on whether it is accepting the fines or planning an appeal.
Nevertheless, SMRT said in a statement that the LTA “has informed us … of its intention to fine us S$1 million for each of the two disruptions”.
SMRT reiterated that, since the incidents, it has been “implementing various initiatives to prevent recurrence and improve service reliability and incident response in collaboration with the LTA”.
It will implement further improvements and work closely with the LTA to enhance reliability and service levels, SMRT said.
According to the LTA, its investigations found that SMRT had “failed to meet its licensing obligations for the North-South and East-West Lines (NSEWL)”.
The regulator said: “It has failed, among other things, to exercise due diligence and vigilance expected of a public transport operator, and to maintain its network in good and efficient working condition.”
SMRT was also found to be in breach of the Operating Performance Standards for the NSEWL in both incidents.
The LTA also revealed that its internal investigation on the causes of the incidents is consistent with the findings of the Committee of Inquiry – in particular, that the incidents were preventable.
The LTA said it has also assessed that there were “overall shortcomings in SMRT’s maintenance and monitoring regime”.
Members of Parliament and analysts told TODAY that they had expected the LTA to mete out the maximum fines.
Member of Parliament (MP) for Pioneer, Mr Cedric Foo, who chairs the Government Parliamentary Committee for Transport, pointed out that the disruptions had a massive impact on commuters.
Mountbatten MP Lim Biow Chuan also welcomed the move to channel the fines to the Public Transport Fund, rather than “into the State coffers”. “It’s a good idea that the fines are not seen as benefitting the Government but going to the needy to help with their transport needs,” said Mr Lim.
Both Mr Lim and Nee Soon Group Representation Constituency MP Lee Bee Wah felt that, beyond paying the fine, SMRT should do more to compensate commuters inconvenienced by the breakdowns.
Mr Lim suggested a “fare rebate or a fare holiday”, while Ms Lee said she would “like to see commuters get a more direct compensation”.
On concerns whether the fines would be passed on to commuters, Ms Lee said the Government would need to ensure that does not happen. But she noted that it would ultimately depend on the fare formula, which is currently under review.
Last week, at SMRT’s annual general meeting, its chairman Koh Yong Guan revealed, for the first time, the losses that SMRT incurred because of the disruptions.
The money went towards legal and professional fees – including for services engaged for the public inquiry – as well as rail-related studies and consultancy.
Analysts said the quantum of the fines would have been incorporated into forecasts on SMRT’s financial health.
CIMB Analyst Lee Wen Ching said the S$2-million fine work out to 1.4 per cent of SMRT’s forecast profit of S$143 million in the current financial year. “We view (the fine) as a one-off expense that should not eclipse the permanent elevation in the group’s cost structure arising from higher repairs and maintenance costs,” she said.
SMRT – TODAY
SMRT fined S$2 million
Money to be donated to Public Transport Fund to help needy; SMRT has 14 days to appeal
For its failures resulting in the December train disruptions, public transport operator SMRT was yesterday slapped with the maximum fine of S$2 million by the Government.
The disruptions on Dec 15 and 17 affected more than 200,000 commuters. In a statement announcing the penalties, the Land Transport Authority (LTA) said the money will be donated to the Public Transport Fund to help needy families with transport fares.
SMRT has 14 days to appeal, and the operator – which had already lost S$4.4 million because of the disruptions – declined to comment in response to TODAY’s queries on whether it is accepting the fines or planning an appeal.
Nevertheless, SMRT said in a statement that the LTA “has informed us … of its intention to fine us S$1 million for each of the two disruptions”.
SMRT reiterated that, since the incidents, it has been “implementing various initiatives to prevent recurrence and improve service reliability and incident response in collaboration with the LTA”.
It will implement further improvements and work closely with the LTA to enhance reliability and service levels, SMRT said.
According to the LTA, its investigations found that SMRT had “failed to meet its licensing obligations for the North-South and East-West Lines (NSEWL)”.
The regulator said: “It has failed, among other things, to exercise due diligence and vigilance expected of a public transport operator, and to maintain its network in good and efficient working condition.”
SMRT was also found to be in breach of the Operating Performance Standards for the NSEWL in both incidents.
The LTA also revealed that its internal investigation on the causes of the incidents is consistent with the findings of the Committee of Inquiry – in particular, that the incidents were preventable.
The LTA said it has also assessed that there were “overall shortcomings in SMRT’s maintenance and monitoring regime”.
Members of Parliament and analysts told TODAY that they had expected the LTA to mete out the maximum fines.
Member of Parliament (MP) for Pioneer, Mr Cedric Foo, who chairs the Government Parliamentary Committee for Transport, pointed out that the disruptions had a massive impact on commuters.
Mountbatten MP Lim Biow Chuan also welcomed the move to channel the fines to the Public Transport Fund, rather than “into the State coffers”. “It’s a good idea that the fines are not seen as benefitting the Government but going to the needy to help with their transport needs,” said Mr Lim.
Both Mr Lim and Nee Soon Group Representation Constituency MP Lee Bee Wah felt that, beyond paying the fine, SMRT should do more to compensate commuters inconvenienced by the breakdowns.
Mr Lim suggested a “fare rebate or a fare holiday”, while Ms Lee said she would “like to see commuters get a more direct compensation”.
On concerns whether the fines would be passed on to commuters, Ms Lee said the Government would need to ensure that does not happen. But she noted that it would ultimately depend on the fare formula, which is currently under review.
Last week, at SMRT’s annual general meeting, its chairman Koh Yong Guan revealed, for the first time, the losses that SMRT incurred because of the disruptions.
The money went towards legal and professional fees – including for services engaged for the public inquiry – as well as rail-related studies and consultancy.
Analysts said the quantum of the fines would have been incorporated into forecasts on SMRT’s financial health.
CIMB Analyst Lee Wen Ching said the S$2-million fine work out to 1.4 per cent of SMRT’s forecast profit of S$143 million in the current financial year. “We view (the fine) as a one-off expense that should not eclipse the permanent elevation in the group’s cost structure arising from higher repairs and maintenance costs,” she said.
SPH – DMG
Property segment continues to support growth
In-line; 3QFY12 recurring earnings grew 2.2% YoY. 3QFY12 recurring earnings of S$113m (+25% QoQ) accounted for 25% of our full year estimate. However 3QFY12 PATMI was down 13% YoY to S$100m due to a 60% YoY decrease in investment income (from fx related losses and lower dividend income). Property segment contributed to growth with rental income up 13% YoY with higher contribution from Clementi Mall and higher rental rates from Paragon. We tune downwards our FY12/13 PATMI estimates by 2%/1% due to lower Newspaper & Magazine (N&M) segment income partially offset by higher property related income. Maintain NEUTRAL with lower SOTP TP of S$3.85 (from S$3.91 previously). SPH’s FY12 dividend yield of 5.9% remains attractive though we see a lack of near term catalysts that could lead to share price upside.
We expect N&M to be weaker on slower domestic economic outlook. N&M advertisement revenue is correlated to Singapore’s economic performance. On 13 Jul 12, our OSK|DMG economics team trimmed our Singapore 2012 GDP growth forecast by 1.4ppt to 2.6% (see report titled “Singapore: Growth Momentum Slowed in 2Q12”). We correspondingly lower our FY12/13 N&M ad revenue by 3.5%/4.6%. On a positive note, falling newspaper circulation volume creates somewhat of a natural hedge seen through a 5.1% YoY decrease in 3QFY12 newsprint costs.
Property segment supporting growth. Rental income was up 13% YoY to S$49m due to a fully operational Clementi Mall and higher rental rates from Paragon. Acquisition of the Sengkang commercial site was completed in Apr 12, and the prospective mall is expected to become operational from 2015 onwards.
SOTP-derived TP of S$3.85. We value the core media segment based on 11x FY12 P/E, Paragon (S$2.4b) with assumption of a 5% revaluation gain, Clementi Mall (S$266m) with assumption of average passing rent of S$15/sqft, cap rate of 5.5%, M1 and Starhub at DMG TP and investments as at May 12.
SPH – Kim Eng
Cash is King
Respectable results. SPH announced its 3QFYMay12 results, which were broadly in line with market expectations. Top line registered a 0.9% yoy growth, driven by strong performance from the Property segment (+12.8% yoy) despite marginally decline from Newspaper & Magazine segment (-0.6% yoy). Core earnings increased by 2.2% yoy. Maintain BUY with target price of SGD4.43, based on SOTP valuation.
Core ads earnings remain stable. Print advertisement revenue remained stable with a marginally increase of SGD0.7m (+0.4% yoy) driven by 2.9% growth in Display ads. Circulation revenue declined in line with market expectation by SGD2m (-3.6% yoy) but circulation levels were maintained at an average of 1m copies daily.
Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 3QFY12, rental income rose by SGD5.5m (+12.8%). This was driven by higher rental rate in Paragon as well as contribution from full operation of Clementi Mall.
Operating margin sustained at a healthy 33.5%. Average newsprint cost declined for the second consecutive quarter to USD677/ton from USD690/ton last quarter. Staff cost increased by SGD6m (+6.8%) due to increased headcount from the acquisitions. Operating margin was sustained at 33.5%, marginally improved from last year. Net profit of SGD100m was 13.1% less compared with a year ago. It is mainly because of a 60% decline in investment income due to mark-to-market losses in volatile market condition, which to us is not very worrying.
Maintain BUY, with SOTP TP of SGD4.43. We maintain our BUY call on SPH with SOTP TP of SGD4.43. We believe a potential spin-off of its retail assets will add value to shareholders. Valuation is not expensive at 15.6x FY13F PE and 3.0x FY13F PB given SPH’s monopoly position in media business. Downside should be protected by 6.5% dividends yield.