Author: tfwee
SPH – DBS
Positioning for stronger pick-up
• 1Q10 net profit doubled to S$144.7m on property development, lower newsprint and investment
income; within expectations
• Ad revenues to gather momentum on activities ahead – IR, property launches, recruitment
• Overpayment for Clementi Mall is already priced in
• Upgrade to Buy, TP: S$4.33 (25% total return upside)
1Q10 earnings doubled, within expectations. SPH’s 1Q10 revenue grew by 4% yoy to S$354m driven by recognition of Sky@Eleven, but offset by a 2.5% drop from its Newspaper & Magazine operations. EBIT grew to S$164.7m (+24% yoy, +S$31.8m) contributed largely by property development’s EBIT at S$50.3m (+38% yoy, +S$14m) and lower newsprint chargeout costs at S$22.1m (-38% yoy, -S$13.6m). Net profit surged 98% yoy to S$144.7m largely due to the absence of a S$33.7m investment loss recorded in 1Q09, versus S$10.2m gain in 1Q10.
Ad revenue still down but expect improvement. Although total ad revenue dipped 3.1% yoy to S$182.4m in 1Q10, this was an improvement over 4Q09’s 18.4% yoy drop. Display ads growth turned positive at 2% yoy, not seen since 4Q08. We are now assuming a stronger growth for ad revenues (+8%, vs 4% previously) on expectations that ad revenues will be stronger sequentially on the opening of both IRs, pick up in property launches and employment market. As such, we revised our forecasts up by 3-6%.
Clementi Mall “hiccup” priced in. While we feel SPH has overpaid for Clementi Mall, the market has already priced that in after a knee-jerk reaction to its share price. A write-down in future is possible but impact should be minimal at c.6 Scents per share based on our estimates.
Upgrade to Buy, TP revised to S$4.33. We revised up our TP to S$4.33 (from S$4.00) factoring in higher earnings assumption and as we adjust our sum-of-parts valuation to factor in a potential write-down of Clementi Mall (S$95.9m or S$0.06/share) instead of a 5% discount. Dividend yield at an attractive 6.8% (based on our DPS forecast of 25 Scents) should provide a good support to share price.
StarHub – BT
Sing the blues away with StarHub’s KaraOK!
EVER croaked in front of your colleagues whilst singing karaoke and embarrassing yourself? Well, StarHub may have a solution to your problems. On Monday, the info-communication company will launch a new service named KaraOK!, which allows customers to access karaoke videos through their HubStation or Hubstation HD set top boxes.
The service will be offered on either a monthly or a daily basis. StarHub TV Customers will be able to subscribe to the service at $10/month or pay $4.50 for a 24-hour period. Some 5,000 videos will be made available from launch, with about 100 videos to be added weekly.
The full library of 30,000 karaoke videos in various languages is estimated to be available by the end of the second quarter. Songs made available will range from classics to the latest releases, with more than 10 song categories available to customers.
StarHub has linked up with at least 10 record labels including Warner Music Singapore, Sony Music Singapore and Universal Music Singapore in order to keep its library up to date. According to Tan Tong Hai, chief operations officer of StarHub, the service aims to be more of a complementary service than a direct competitor to karaoke operators. Those interested in trying out the service may visit the KaraOK! roadshow at Plaza Singapura from Jan 25-28.
SingTel – CIMB
Listing Optus?
IPO of vendor or new shares?
Maintain Underperform. Dow Jones has reported that SingTel plans to sell 25% of Optus in an IPO that could raise A$4bn, according to unnamed sources. The report also quotes another source saying that SingTel values Optus at A$14bn. This news does not surprise us as SingTel was earlier rumoured to be planning a listing of Optus. It is unclear if it plans to sell new or vendor shares. We would be positive if
SingTel sells down its stake as the funds raised could be distributed as dividends. But if Optus raises fresh equity, we would view this negatively, as we see little need for more capital. The A$14bn valuation appears steep against our valuation of A$9.3bn. We maintain UNDERPERFORM on SingTel with an unchanged sum-of-the-parts target price of S$3.30. We see potential de-rating catalysts from further negative news
from India, rising content costs in Singapore and a likely escalation of competition in Australia.
The news
Dow Jones has reported that SingTel plans to sell 25% of Optus in an IPO that could raise A$4bn, according to unnamed sources. The report also quoted another source saying that SingTel values Optus at A$14bn. “Although there is no firm timing yet and no banks have been mandated, you could see things rolling as early as the first half of this year.”
Comments
Doing a Hutch? This news does not surprise us. SingTel was earlier rumoured to be planning a listing of Optus. It is unclear if it plans to sell new shares of Optus or vendor shares. We would be positive if SingTel sells down its stake as the funds raised could be dished out as dividends. The A$4bn raised equates to S$0.33/share or 11% of SingTel’s share price. This would be reminiscent of Hutchison Telecom
International Ltd, which spun off its mature units in Hong Kong Macau by way of distribution in specie.
But if Optus raises fresh equity, we would view this negatively. We see little need for more capital by Optus, given the mature market in Australia and Optus’s already strong free cash flow of about A$600m p.a.
Steep valuations. The A$14bn valuation touted appears steep, at 16x and 15x CY10-11 P/Es and 6.1x and 5.9x EV/EBITDA vs. our valuation of A$9.3bn. This is especially so against a backdrop of rising competition from Virgin Hutchison Australia, which is aiming to the second-largest mobile operator.
Nonetheless, SingTel would benefit if this valuation can be achieved. The valuation implies a 5.6% CAGR equity return for SingTel for the last nine years, taking into account its acquisition price of US$9bn (S$15.6bn) in Sep 01, an estimated average A$700m p.a. in dividends to SingTel and the A$14bn (S$18bn) IPO valuation. The returns would be higher if the acquisition is leveraged.
Valuation and recommendation
We maintain our UNDERPERFORM rating on SingTel with an unchanged sum-of-theparts target price of S$3.30, on the back of this news. We see potential de-rating catalysts from further negative news from India, rising content costs in Singapore and a likely escalation of competition in Australia. Switch to M1 (M1 SP, Neutral, TP: S$2.07) for lower-risk, higher-dividend telco exposure in Singapore or Axiata (AXIATA
MK, Outperform, TP: RM3.86) for exposure to regional emerging telco markets.
SPH – BT
SPH Q1 profit almost doubles to $144.7m
Higher earnings lifted by swing in net income from investments
MEDIA group Singapore Press Holdings’ net profit for the first quarter to Nov 30, 2009, almost doubled to $144.7 million, from just over $73 million in the same period last year.
That was despite operating revenue for its core newspaper and magazine publishing business falling 2.5 per cent to $243.2 million. The group’s total operating revenue rose 4 per cent to about $354 million.
The increase in profitability was helped by a swing in net income from investments – from a net loss of $33.7 million for the previous year’s Q1 to a net income of $10.2 million this Q1. Earnings per share for the quarter was nine cents, compared with five cents in the previous Q1.
Recurring profits before tax rose 24.7 per cent to $159.4 million, from $127.8 million the previous year. These profits represent recurring earnings from the media and property businesses, including profits from the group’s Sky@eleven development.
SPH’s property arm contributed almost $100 million in sales this year, up 22.7 per cent from the previous year.
SPH said advertisement revenue dipped slightly due to fewer classifieds while circulation receipts fell marginally. However, operating revenue ‘has shown improvement in recent months’, the company said. ‘Our advertisement revenue has improved in recent months and is expected to move in tandem with the economy,’ said chief executive Alan Chan.
Profits were also boosted by lower costs, primarily due to lower newsprint costs. Staff costs fell 2.2 per cent or $1.7 million due to wage cuts and the government’s Jobs Credits grants, while headcount remained flat at 3,945.
SPH announced a partial restoration of pay cuts and Mr Chan said that the company ‘will continue to monitor our cost levels closely while at the same time devote resources and explore opportunities to grow beyond print and Singapore’. The directors are pleased with the company’s performance in the quarter, he said, and they expect overall performance for FY2010 to be satisfactory.
Profits from the property segment – primarily contributions from the group’s Paragon shopping mall and Sky@eleven residential development – are expected to ‘contribute significantly to recurring earnings’ this financial year, SPH said. Its recent acquisition, a mall in Clementi, is targeted to begin operations in the first half of 2011.
SPH stock closed trading yesterday at $3.66, down 2 cents or half a per cent. SPH owns The Business Times and publishes 16 other newspapers in four languages as well as over 100 magazine titles.