Author: kktan
SPH – OCBC
RETAIL LANDLORD STRATEGY COMING ALONG NICELY
•Print ads slow down
•Offset by Clementi Mall income
•Support from 6.5% dividend yield
1QFY12 PATMI of S$97.5m or 6 S-cents per share.
Singapore Press Holdings (SPH) reported 1Q12 PATMI of S$97.5m or 6 S-cents per share, down 4.7% YoY. This was mainly due to a poorer performance from the Newspaper and Magazine segment, offset by added contributions from Clementi Mall. 1Q12 PATMI formed 26.3% of our FY12 forecast and is broadly in line with expectations. The topline came in at S$332.4m which is 4.3% higher YoY due to Clementi Mall (rental income of S$9m) and new shows in the exhibitions business, but was partially offset by Newspaper and Magazine revenues falling 1.2% YoY.
Print advertisement performance softer YoY.
As anticipated, we saw 1QFY12 revenues from print advertisement fell 1.2% YoY, driven by declines in both display and classified ads. Display ads demand from the fast moving consumer goods and banking/finance segments fell relative to 1QFY11, while demand increased from the property and fashion segment. There were also pressure from operating costs; newsprint and staff costs increased 4.2% and 1.5%, respectively.
Retail property strategy coming along nicely.
Clementi Mall contributed S$9m to revenues as it ramped up into full operations this quarter, its added contributions buttressing earnings significantly. We like the visibility of recurring income from a suburban retail mall, and believe management’s strategy of building a stable counterweight to the print business is coming along nicely. With ~S$1.2bn of investible funds in its arsenal, we expect SPH to add to its retail landlord portfolio over FY12-13.
Upgrade to BUY.
We also saw a S$12.9m mark-down in available-for-sale assets, made up in part of listed equities in listed telcos and REITs. While more mark-downs could come if equity markets soften, we are not overly concerned given the yield and defensiveness of these holdings. Upgrade to BUY at a fair value estimate of S$3.99 and expected dividends of S$0.24 in FY12.
SPH – CIMB
Weaker investment income
1Q12 ad revenue slowed as expected though investment income fell more than anticipated. Its share price could remain supported by decent yields of 6% but we see this balanced by receding ad growth and investment income.
1Q12 core profit is in line at 25% of our FY11 estimate and consensus. Stronger property earnings and lower finance costs made up for weaker print and investment income. We keep our EPS estimates and SOP target price. Maintain Neutral.
Slowdown in ad growth
We expect slower ad revenue in FY12 because of a weakening economy. The slowdown had already been apparent in 1Q12 when newspaper ad revenue fell 4% yoy on weaker display (-3% yoy) and classified (-4% yoy), albeit from a high base in 1Q11. While SPH tried to keep a tight lid on costs (staff and newsprint costs were up 2% and 4% respectively), this was not sufficient. We expect sustained topline weakness and a slight cost reprieve from softening newsprint prices and variable staff costs in the coming quarters.
Investment income succumbed
While risks to its investment portfolio were to be expected given market volatility, SPH surprised with a 90% yoy fall in investment income due to unrealised FX losses on investments. We understand that these were mainly related to forward hedging contracts for both investments and newsprint exposure, stemming from a stronger US$. With continued market volatility and possibly unabated US$ strength, risks remain.
Property only performer
Property was the sole performer as rental revenue grew 27% yoy with the aid of Clementi Mall which had commenced operations in 2QFY11 and higher rental rates at Paragon (+3% yoy). Both are fully leased.
SPH – BT
SPH reports 4.7% slip in Q1 net profit
Singapore Press Holdings (SPH) on Tuesday posted a 4.7 per cent drop in net profit to $97.5 million for the first quarter ended November 30, 2011 compared to the same period a year ago.
Group recurring earnings for the first quarter was up 4.2 per cent to $121 million. Investment income tumbled 90.3 per cent over the year to $600,000 due to unrealised foreign exchange losses on investments as a result of volatility in the financial markets.
Revenue for the group’s newspaper and magazine business fell 1.2 per cent to $262 million over the year.
Print advertising revenue dipped 1.2 per cent to $204 million, while circulation revenue inched down 1.8 per cent to $50.3 million.
Rental income for group was up 27.2 per cent to $46.9 million, with Clementi Mall recording rental income of $9 million in the quarter.
Newsprint costs rose 4.2 per cent, while staff costs were up 1.5 per cent.
Other operating expenses grew 16.1 per cent due to the start of Clementi Mall’s operations, and higher overheads from increased business activities and inflationary pressures.
‘The outlook for the global economy remains fraught with uncertainties,’ said Alan Chan, chief executive officer of SPH.
‘The group will strive for a sustained performance in the core newspaper business whilst pursing growth in business adjacencies.’
Shares of SPH closed three cents higher at $3.70 a piece.
SMRT – OCBC
BUSINESS AS USUAL BUT FOCUS
ON MINISTERIAL STATEMENT
•Beleaguered SMRT CEO resigns
•No interim impact; business as usual
•Ministerial Statement will be key focus
SMRT CEO resigns immediately.
SMRT announced late Friday evening that CEO Saw Phaik Hwa has decided to step down with immediate effect to “pursue personal interests”. Ms. Saw had been under pressure ever since the series of major service disruptions in Dec last year but had previously rejected calls for her resignation whilst stating her commitment to fix the service issues.
No interim impact; business as usual.
As the Board of Directors search for a new CEO – most probably externally – Board member, Mr. Tan Ek Kia, will assume interim executive responsibility for the management of the company. With his previous work experience as Managing Director of Shell Malaysia Exploration and Production and Chairman of Shell North East Asia, we do not foresee any issues arising from this temporary arrangement on operations.
Ministerial Statement to shed light on punishment.
Transport Minister, Mr. Lui Tuck Yew, will make a Ministerial Statement today on the MRT service disruptions last month. Some of the issues expected to be discussed are on the Committee of Inquiry and its work, reasons for the disruptions as well as if SMRT will be held accountable for the breakdowns.
Initial selling pressure may occur but maintain BUY.
While the timing was a surprise, Ms. Saw’s resignation had been somewhat expected and should not affect its share price. Instead, we believe that investor focus will be on the Transport Minister’s Ministerial Statement, which should provide some indication on the penalty to be imposed on SMRT as well as the possibility of any additional costs necessary to plug service gaps. As we maintain our assertion that SMRT’s dividend payout ability remains intact at least for the year (FY12F dividend yield: 4.4%), we leave our DDMderived fair value of S$2.04 unchanged and maintain our BUY rating on SMRT.
TELCOs – BT
Telcos top picks in two outlook reports as volatility persists
M1, SingTel, DBS, Frasers Centrepoint Trust have emerged as key ‘buy’ calls
WITH global uncertainties carrying over from 2011 into the new year, telecommunications stocks have once again come up as top picks in two market outlook and strategy reports.
M1, SingTel, DBS, and Frasers Centrepoint Trust, in particular, have emerged as key ‘buy’ calls from both UOB Kay Hian Research and OCBC Bank’s Wealth Panel, in separate reports released on Friday.
Forecasting a 2012 Straits Times Index (STI) price to earnings (PE) ratio of 12.1x, UOB Kay Hian said the index’s valuation is ‘undemanding’ – at a 26 per cent discount to its long-term PE mean of 16.3x (since 1993).
‘Nevertheless, we think the discount may remain elevated in the near term, given the uncertain prospects for 2012 corporate earnings and lingering concerns over the euro debt crisis,’ said UOB Kay Hian.
The research house said investors should opt for a balance of sustainable high-yield stocks, selective retail Reits, and ‘undervalued laggards with specific stock catalysts’.
Apart from the telcos, UOB Kay Hian’s key ‘buys’ included CapitaLand and Ezion, while City Developments and NOL sat in its key ‘sells’ list. It also recently upgraded Wing Tai and Ho Bee to ‘buys’ due to their deep value after sharp share price corrections in December last year.
Meanwhile, OCBC Investment Research head Carmen Lee warned that even though share prices appear to have discounted weaker earnings expectations, ‘they may not have been fully priced in the worst case scenario’.
Said Ms Lee: ‘If the outlook deteriorates significantly, earnings estimates will need to be shaved further.’
With volatility persisting and investor confidence remaining fragile, the OCBC Wealth Panel said that it prefers quality and safer assets, and high dividend yielding defensive stocks.
Telecommunications aside, the OCBC team said that they continue to favour the healthcare and oil and gas sectors in 2012. Its picks for the year include Raffles Medical, Keppel Corp, Sembcorp Marine, Biosensors, and Golden Agri-Resources.