Fairly priced

1Q12 media performance was flat, no surprises. Cost pressures appear to be receding with signs of a bottoming for ad demand. But we struggle to find compelling catalysts for outperformance at current levels.

2Q/1H12 profit is slightly below at 22%/47% of our FY12 estimate and consensus on lower investment income. We lower our estimates by 1-3% to factor in the quarter but raise SOP target, incorporating its Sengkang acquisition and higher property values. Maintain Neutral.

Ad demand bottoming

We think ad demand could have bottomed. Ad revenue still declined 2.3% yoy in 2Q12 but the drop had slowed from 1Q12’s -4% as stronger display ads (+3% yoy) partially made up for weaker classified ads (-9%). The former benefitted from property (stronger-than-expected project sales and launches in Feb) and auto ads while classified ads suffered from reduced job ads. Circulation revenue fell for the second consecutive quarter with SPH yet to reap the results of its subscription drives.

Cost pressures receding

Cost pressures receded, expectedly, on softening newsprint prices and lower variable staff bonuses. 2Q12 newsprint costs were up a marginal 4% yoy while staff costs shed 0.3% despite an increased headcount. Newsprint spot prices are softening and savings should flow through as supplies are absorbed. Other opex could remain high on costs from subscription drives.

Not attractive enough

An interim dividend of 7cts has been declared, unchanged from 1H11. The 6% yields are fairly attractive given low interest rates and S$ appreciation. However, we think the yields could have priced in a mature print business and a lack of compelling catalysts. Its exhibition business is doing well with Internet investments turning around though contributions are small. We prefer retail S-REITs like CMT and FCT for their retail exposure and stronger growth potential.

No surprises; maintain NEUTRAL

2QFY12 recurring earnings grew 14% YoY, within our expectations. SPH reported 2QFY12 recurring earnings of S$90m (-26% QoQ) which made up 20% of our full year forecast. 2Q has historically been a weaker quarter. Property segment was the main contributor with rental income up 21% YoY on the back of higher contribution from Clementi Mall and higher rental rates from Paragon. Another comforting note was that 1HFY12 “Others” segment PBT losses were narrowed by 64% to S$5.6m. We continue to see a lack of catalysts for share price upside and maintain NEUTRAL with TP of S$3.91. An interim dividend of 7S¢ per share has been declared. SPH’s FY12 dividend yield of 6.2% still remains attractive.

Decline in N&M performance offset by property and others. 1HFY12 N&M PBT was down 6% due to lower ads from the banking and FMCG sectors. This was offset by better performance from the “Others” segment (comprising of internet and exhibitions) whose decline narrowed by 64% to S$5.6m. Property continued to contribute strongly as expected with 1HFY12 PBT growth of 43% to S$48m on the back of higher rental income from Clementi Mall (100% leased) and higher rental rates from Paragon.

Newsprint and staff costs remain stable. 1HFY12 staff costs increased only by a marginal 1% to S$178.3m despite a 4% increase in average headcount (from the acquisition of ACP Magazines) as bonus pools were reduced from the weaker performance in the N&M segment. Newsprint charge out prices remains stable as well with 2QFY12 prices flat QoQ (compared to previous seven quarters of consecutive increases).

SOTP-derived TP of S$3.91. 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 Feb 12.

No surprises; maintain NEUTRAL

2QFY12 recurring earnings grew 14% YoY, within our expectations. SPH reported 2QFY12 recurring earnings of S$90m (-26% QoQ) which made up 20% of our full year forecast. 2Q has historically been a weaker quarter. Property segment was the main contributor with rental income up 21% YoY on the back of higher contribution from Clementi Mall and higher rental rates from Paragon. Another comforting note was that 1HFY12 “Others” segment PBT losses were narrowed by 64% to S$5.6m. We continue to see a lack of catalysts for share price upside and maintain NEUTRAL with TP of S$3.91. An interim dividend of 7S¢ per share has been declared. SPH’s FY12 dividend yield of 6.2% still remains attractive.

Decline in N&M performance offset by property and others. 1HFY12 N&M PBT was down 6% due to lower ads from the banking and FMCG sectors. This was offset by better performance from the “Others” segment (comprising of internet and exhibitions) whose decline narrowed by 64% to S$5.6m. Property continued to contribute strongly as expected with 1HFY12 PBT growth of 43% to S$48m on the back of higher rental income from Clementi Mall (100% leased) and higher rental rates from Paragon.

Newsprint and staff costs remain stable. 1HFY12 staff costs increased only by a marginal 1% to S$178.3m despite a 4% increase in average headcount (from the acquisition of ACP Magazines) as bonus pools were reduced from the weaker performance in the N&M segment. Newsprint charge out prices remains stable as well with 2QFY12 prices flat QoQ (compared to previous seven quarters of consecutive increases).

SOTP-derived TP of S$3.91. 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 Feb 12.

2QFY12 RESULTS MOSTLY IN LINE

•Falling recruitment ad demand

•Stable retail landlord numbers

•7 S-cent interim dividend declared

2QFY12 results mostly within expectations

Singapore Press Holdings’ (SPH) 2QFY12 PATMI came in at S$83.9m, or 5 S-cents per share, which was 16% higher YoY. Recurring income (before income from investments and associates) for the quarter was S$90.1m – up 14% YoY mostly due to Clementi Mall’s contributions. 1HFY12 PATMI now make up 46% of our full year forecast, falling short mainly due to lower investment income. 2QFY12 topline was S$298.5m – in-line with our expectations – and making up 50% of our full year forecast. An interim dividend of 7 S-cents was declared.

Pressure from falling recruitment ad demand

1HFY12 print advertisement and circulation revenues were both marginally lower YoY (down 0.3% and 1.4% respectively), with pressure coming mainly from lower demand for recruitment ads and lower circulation. Average staff headcount in 1HFY12 increased 3.7% to 4,228. However, staff costs were mostly flat at S$178.3m (up 0.6% YoY) as bonuses (pegged to profitability benchmarks) decreased. Newsprint costs were stable in 2QFY12 at US$690/MT versus S$$691 the previous quarter.

Another strong quarter from retail malls

We saw another strong quarter from retail landlord operations. Paragon revenue in 1HFY12 increased 2.2% (S$1.6m) due to positive rental reversions. The Clementi Mall also took in S$18.2m in rental income; it is currently 100% leased with daily foot traffic around 60k. Management indicates that development plans for its new commercial development in Sengkang (70:30 JV with United Engineers Limited) is proceeding as planned; completion is expected within four years.

Maintain BUY

We continue to view SPH favorably as it continues to ramp up on its retail mall strategy, which would constitute a stable counterweight to its print business going forward. We note that group investible funds currently stand at S$0.9bn, which points to sufficient capacity for further allocation into its retail strategy ahead. Maintain BUY with a higher fair value estimate of S$4.05 (versus S$3.99 previously) mostly due to stronger assumptions for Clementi Mall.