Author: tfwee
SPH – BT
SPH explains property move; shareholders praise FY2009 results
SINGAPORE Press Holdings (SPH) shareholders yesterday praised the media group for the creditable FY2009 financial results and the 25-cents-a-share dividend payment. They also sought further assurance from the company on its property foray.
At the SPH annual general meeting, shareholder Vincent Chen was concerned that the company’s share price could be hurt should the market view it as a conglomerate with interests in many areas beyond its core newspaper business. He suggested that SPH focus on its core business and return cash to shareholders to invest in pure-play property counters.
SPH publishes 17 newspapers, including The Business Times, and more than 100 magazine titles. Beyond its media business, it also owns Paragon shopping mall in Orchard Road. A condominium project at Thomson Road is due to be completed in the middle of next year. And an SPH-led consortium recently won a bid for a prime mall building in Clementi.
Chief executive officer Alan Chan said that the mall project will buffer the company from the ups and downs of the media business. And chairman Tony Tan said that the bid is ‘testament to SPH’s willingness to seek new opportunities to increase shareholder value’.
In the fiscal year ended August 2009, SPH’s newspaper and magazine sales dropped 12 per cent, but net profit of $422 million was just 3 per cent down, helped by higher contributions from property and pre-emptive measures to cut costs.
Mr Chan said that 50 cents of every dollar spent on advertising in Singapore goes to SPH, but the industry – especially in developed countries – is under great stress.
‘Print (media) is something very close to our hearts and we will invest as much as possible to maintain that,’ he said. But it is a ‘very challenging’ industry now, and the company will have to prepare for a time when the media business will no longer be as profitable. New property ventures give the company an opportunity to expand its areas of expertise, Mr Chan said.
Shareholders praised SPH management for guiding the company through a difficult year with profit more or less intact.
Dr Tan acknowledged the contributions of management and staff, who took pay cuts and stayed loyal to the company through the past year.
One shareholder asked the board on the absence of women in its ranks. ‘Women bring a fresh perspective to things,’ she said, noting that a woman on the board would not have supported the running of sexist advertisements. Dr Tan said that the board will consider the issue at its next meeting.
SPH – UOBKH
Ad spend recovery is well ahead of expectation
SPH remains a BUY with a target price of S$4.40. November page-counts suggest ad spend recovery is well ahead of expectation. Ex-div share price of S$3.59 offers 23% upside to target price.
Corporate Event
Faster recovery pace in the last two months. The Straits Times’ Saturday papers suggest ad spend recovery is well ahead of our expectation. Apart from the last Saturday of November (advertising was trimmed during the Pilgrimage Festival long weekend), the Saturday papers in November surpassed 240 pages, above the average 230 pages in October (Aug-Sep: 214). Singapore Press Holdings (SPH) maintains the ratio of editorial to advertisements at 50:50. It would appear that ad spend grew at a faster pace in the last two months.
Ad spend growth has finally turned positive. Ad spend is seeing the first yoy growth in the current economic upcycle. Based on the trend of the pagecounts of Saturday papers, we estimate ad spend growth has improved from a contraction of 16% in September and 7% in October to a positive growth of 9% in November. At the height of the crisis in late-08 and early-09, the average page-counts of the Saturday papers fell below 200 pages. At today’s page-count of 240 pages, going forward the Saturday papers in some months could see high yoy double-digit growth rates in page-counts. The page-counts of The Straits Times are a leading barometer of SPH’s advertising revenue (AR) growth.
Stock Impact
AR will likely surpass our expectation. In our earnings forecasts, we have assumed flat AR growth in FY10 and a growth of 10% and 8% in FY11 and FY12 respectively. If Saturday papers can maintain above 240 pages (indeed, we believe page-counts will continue to grow), we see potential upgrade in our earnings forecasts. For every additional 5ppt in AR growth rate, SPH’s net profit would be enhanced by 6-8%. The extra revenue would more or less go straight to the bottom line.
We anticipate the opening of Singapore’s integrated resorts, Marina Bay Sands and Resorts World@Sentosa in 1Q10, to boost ad spend further as the hospitality and retail sectors ramp up advertising to capture more consumer spending. Thus, share price has a close relationship with UOB Kay Hian page-counts.
Pay cut restoration signals a recovery is underway. SPH will restore half of the pay cuts (2-10%) introduced in April this year. In FY09, total staff cost of S$286.9m was 35% of total cost. We understand from management the pay restoration would have a marginal impact on FY10 net profit (our est.: < 3%).
However, this does not include potentially higher bonuses which are tied to the performance of the media business. We have assumed in our earnings forecasts staff cost increases of 6% and 8% for FY10 and FY11 respectively. We estimate for every 5% extra cost above our projections, net profit would be trimmed by 3%.
Recommendation
The big picture of an AR recovery remains intact. SPH’s share price, cum FY09’s final dividend of 18 cents, will go ex-dividend on 9 December. Our target price of S$4.40 implies a 23% upside on the ex-dividend share price of S$3.59. Annual yield is forecast at 6-7%.
StarHub – DB
The 10% dividend yield is sustainable: Maintain Buy
Buy for the sustainable yield and upside potential
We adjust STH’s estimates to reflect the EPL loss and 9M09 performance. Specifically, we reduce FY11e revenues by 3% and cut our target price by 6% to S$2.35. But more importantly, we believe STH’s intention to pay 20c/share annual dividend is sustainable given the company’s reserves and cashflows. At current prices, therefore, STH offers a 10% yield and since our S$2.35 target price implies just 8.5% yield (less than regional peers) we view it as achievable over the next 12 months. Given the offered 26% total return at current prices, we reiterate Buy.
Adjusting estimates on EPL loss and 9M09 trends
After EPL loss, we expect STH to lose 60k pay TV and 51k broadband subscribers by end 2010e. In addition, we project FY11e pay TV ARPU will reach S$48 (current S$56) and broadband ARPU to reach S$46 (current S$50). These changes reduce FY11e cable revenues by S$149m versus our FY09e forecast. However, we revise up our mobile and fixed revenue forecasts on 9M09 performance and increase FY11e EBITDA margin to reflect the lower Cost of Services after EPL loss and changes in STH’s revenue mix away from the lower margin cable business.
But the 20c/share annual dividend is sustainable
The above changes reduce our FY11e NPAT by just 2%. But our FY11e EPS at 18c is less than the 20c/share annual dividend targeted by STH which raises questions over the dividend sustainability. But given the company’s shareholder reserves, its willingness to increase balance sheet leverage and our expectation that freecashflow will exceed dividend payout over the long-term, we believe the 20c/share target (and current attractive 10% yield) is sustainable.
TP revised down to S$2.35 but reiterate Buy
Given the above changes, we reduce our target price to S$2.35. Our valuation is based on DCF (7.2% WACC, 0% g) and our target price implies an 8.5% yield which is not aggressive versus comparable peers (see p4) at a target 12.4x FY10e PE. Given the 16% upside to our target price and 10% sustainable yield, we reiterate Buy. Risks include content costs, competition and management change.
SPH – BT
SPH to restore half of pay cuts for staff
SINGAPORE Press Holdings (SPH) is restoring half of the pay cuts it introduced in April.
The cost-cutting measure, which came amid adverse business conditions resulting from the global economic crisis, saw the basic monthly salaries of staff earning more than $2,000 cut by 2-10 per cent. But from January next year, half the cuts will be restored. The media group is also giving special one-off amounts to staff to thank them for the sacrifice and contributions they made.
‘SPH had to take quick pre-emptive measures by cutting wages, operating costs and budgets. These helped us weather the financial storm,’ said SPH chief executive officer Alan Chan.
‘Singapore’s GDP has since seen a strong rebound in the third quarter of 2009 with 14.9 per cent quarter-on-quarter growth,’ said Mr Chan.
Citing the net profit of $421.9 million which the group delivered, despite the challenging conditions, for the financial year ended Aug 31, 2009, Mr Chan said: ‘Given the circumstances, SPH has done well in the financial year 2009.’
The full-year earnings were augmented by profits from the group’s Sky@eleven condo project.
Mr Chan said that the business outlook remained uncertain despite signs of gradual recovery. ‘Our advertisement revenues, which saw some improvement in recent months, are expected to move in tandem with the economy. We will have to monitor our cost levels closely while at the same time continuing to exploit opportunities to grow beyond print and beyond Singapore.’