Author: tfwee
SPH – CIMB
In an enviable position
• Positive momentum on newspaper adex set to continue. Newspaper adex grew by 14.6% yoy in November 2007 which should support a full year growth of 10%, the fastest growth since 2004. We expect newspaper adex to enjoy multiyear growth stemming from a buoyant domestic economy as Singapore transforms itself into a key global destination.
• Raising ad rates. In view of the positive outlook, SPH has raised its display and classifieds ad rates by 2.2-7.5% for the Straits Times, the Sunday Times and Business Times with effect from 1 January 2008.
• Revising earnings and dividend estimates. We have raised our earnings estimates for core media operations but this is offset by a cut in investment income estimates, resulting in an earnings reduction of 1-4% for FY08-09. However, dividend estimates have been raised by 6-8% on the back of higher payout ratio assumption given robust prospects from recurring operations.
• Maintaining Outperform with higher target price of S$5.20. Our sum-of-the-parts based target price is raised slightly from S$5.10 as we upgrade our earnings estimates for the core media operations. We believe that SPH’s defensive earnings as Singapore’s dominant print media player and a solid 7.6% prospective yield positions the stock to outperform the index, particularly in a riskaverse market environment.
Thomson Medical – Phillip
Welcome 2008
Recently, we visited Thomson Medical Center. After we obtained further updates from Thomson’s management, we found that Thomson’s fundamentals continue to remain sound. The average number of babies delivered every month at hospitals managed by Thomson over the past four months has surpassed 700, compared to the average deliveries of 639 in FY07. We believe the growth of child deliveries in Thomson will support well Thomson’s top line and bottom line growth in 2008. Due to weak market conditions, we have seen Thomson’s share price slide to S$0.62, which provides a good entry point to buy into this counter. However, we only recommend long- term investors to take a position due to the short term uncertainty of market.
Postponement of upgrade of two more wards. As the Group has seen increasing number of child deliveries, it could postpone the announced upgrading of two wards to 2H08. As there are just 1.5 months left in 1H08, we would expect that 1H08 will be less affected by upgrading and thus is likely to show a better than expected growth in 1H08. Overall, we retain our target for FY08 and FY09.
Reputable winner of the Singapore Prestige Brand Award 2007. Thomson has won the Singapore Prestige Brand Award once again in year 2007, the award honoring home-grown brands that have been established between 6 to 30 years ago. This recognition demonstrates outstanding performance in the communication and marketing of Thomson’s brand, and has explained why Thomson has taken a bigger bite of the shrinking pie.
Valuation! We maintain our forecast for FY08 and FY09 with net profit SGD 10.5 mln and SGD 12.0 mln. We still peg our PE at 24x FY07, and reach a fair value of 78.5 cents. Given that healthcare sector is more defensive during economic downturns, we feel it is worthwhile to consider Thomson during this time. Re-iterate Buy!
SPH – BT
SPH posts 1.3% rise in Q1 net profit to $111.9m
Profit before investment income surges 19.8% to $126.5m
SINGAPORE Press Holdings (SPH) yesterday reported a 1.3 per cent year-on-year rise in net profit to $111.9 million for its first quarter ended Nov 30, 2007.
The profit rise was despite a 66.9 per cent fall in investment income from $29.7 million to $9.8 million. Earnings per share came to seven cents.
Profit before investment income – which reflects the recurring earnings of the media and property businesses – surged 19.8 per cent to $126.5 million from $105.6 million a year ago, boosted by its newspaper and magazine businesses and profit contribution from its Sky@eleven condominium project.
Group operating revenue grew 14.7 per cent to $312.1 million. Revenue from newspaper and magazine operations rose 8.2 per cent to $261.3 million, underpinned by strong print advertisement revenue growth of 10.5 per cent to $202.9 million. Revenue from property rose 69.9 per cent to $43.5 million, with a contribution of $16.1 million from Sky@eleven.
The drop in investment income was due partly to the fair valuation of investments being affected by recent volatility in financial markets. In addition, the previous year’s investment income was boosted by higher dividend income from telco MobileOne and profit from a capital reduction exercise by telco StarHub.
SPH’s investment portfolio comprises mainly equities and bonds. BT understands that the portfolio does not have direct exposure to US sub-prime mortgages.
In the latest quarter, total operating costs increased 11.8 per cent to $188.5 million.
Property development cost for Sky@eleven accounted for $4.6 million, while staff costs were 14.7 per cent higher due to higher variable bonus provision in line with continued improved profitability of the newspaper business, increased headcount and annual salary increment.
Total headcount in November last year was 3,771, up from 3,562 a year ago, mainly due to the inclusion of new subsidiaries and staffing for new media businesses. Other operating expenses of $41.3 million were up 12.8 per cent, with increased business activity and costs for new subsidiaries.
SPH said that recurring earnings this financial year are expected to be satisfactory. ‘Advertisement revenue will continue to be driven by the Singapore economy, which is expected to grow at a more moderate pace in 2008,’ said chief executive Alan Chan. ‘The group will continue to focus on sustaining its operating profit margin amid rising business costs. Profit from Sky@eleven will provide an added boost to earnings. Barring unforeseen circumstances, the directors expect the recurring earnings for the current financial year to be satisfactory.’
SPH shares closed unchanged yesterday at $4.60.
SPH – UOBKH
1QFY08: Robust 10.2% advertising revenue growth
SPH reported a net profit of S$111.9m (+1%) for 1QFY08. Net profit was flat due to lower income from investments.
Of SPH’s 1Q08 pre-tax profit of S$135.4m (+0.2% yoy), the Newspaper & Magazine and Property segments contributed S$107.0m (+13% yoy) and S$25.2m (+92%) respectively. The Newspaper & magazine segment has made a roaring comeback since 3QFY07. 1QFY08 registered a strong newspaper advertising growth of 10.2%, contributed by 7.9% and 14.3% growth in display and classified ads respectively. 2HFY07’s strong advertising growth momentum was sustained into FY08.
The Property segment benefited from higher contribution from Paragon Shopping Mall and a full-year impact of Sky@eleven in FY08. The former contributed an increase in revenue of S$1.8m whereas the latter S$16.1m. However, SPH’s group PBT was dragged down by lower investment income of S$9.8m compared with S$29.7m previously. This was due to the fair valuation of investments being affected by recent volatility in financial markets. In addition, the previous year’s investment income was boosted by higher dividend income from MobileOne Ltd and profit from a capital reduction
exercise by Starhub Ltd.
On the cost side, newsprint cost declined 3% to S$29.4m in 1QFY08 compared with S$30.3m a year ago. Average newsprint charge-out price was US$587/tonne compared with US$602/tonne previously. However, staff cost rose 15% to S$78.6m due to a higher variable bonus provision in line with continued improved profitability of the newspaper business, increased headcount and annual salary increment. Other operating expenses of S$41.3m were up 13% with increased business activity and inclusion of costs for new subsidiaries.
We raise our print revenue growth assumptions from 5% p.a. for FY08, FY09 and FY10 to 8% for FY08 and 6% each for FY09 and FY10. However, we reduce our FY08 and FY09 net profit forecasts by 8% and 5% to S$513m and S$547m on lower investment income. Our FY10 forecast is relatively unchanged. Despite our reduced FY08 and FY09 earnings forecasts, we raise our target price from S$5.40 to S$5.60, premised on a revised SOP valuation of S$5.58/share, which factors in a higher valuation for SPH’s newspaper & Magazine business.
SPH is a good defensive stock in times of uncertainty. Its core fundamentals are now supported by a healthy AR growth, Paragon’s rising rentals on the back of rising rentals in prime shopping locations in Singapore, a full-year earnings contribution from Sky@eleven and a high annual net dividend yield of 6-7% p.a. Maintain BUY.