Buy For Still Attractive Yield

Results slightly below expectation. SPH announced its 1QFY8/13 results, which were slightly below market expectations. Top line declined slightly by 2.6% yoy to SGD326.4m. Property sector registered 2.9% yoy growth in revenue, which is offset by 2.3% decline by Newspaper and Magazine. Core earnings also declined by 9.8% yoy. However we maintain BUY rating due to still attractive and stable dividends yield, with target price of SGD4.50 based on SOTP valuation.

Core ad business likely to stabilize going forward. SPH’s core print advertisement revenue dropped by 2.3% yoy in 1QFY8/13 due to weak economy condition. However the advertising demand for property, fashion and automobile sector remains strong. We believe that ad revenue is likely to stabilize in FY13 if Singapore economy manages to recover from trough.

Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 1QFY8/13, rental income rose by SGD1.3m (+2.9%) to SGD48.2m. This was driven by higher rental rate in Paragon. Given the robust demand in Orchard area we believe there is still upside from property rental income for FY13.

Operating margin sustained at above 30%. Cost was well-managed in 1QFY8/13, only marginally increased by 1.5% yoy, thanks to low newsprint cost and low interest rate. Operating profit margin remained above 30% level and we believe that 30% OP margin is sustainable going forward.

Yield still attractive. We expect 25cents dividends for FY13 implying 6.1% dividends yield at current price of SGD4.11, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is still above historical average of 352bps. We recommend investors to keep invested in SPH, enjoy 6.1% yield while waiting for more potential exciting news such as property assets spin-off.

Slightly weaker ending quarter

Slightly below our expectations; 4QFY12 recurring earnings fell 17% YoY. 4QFY12 recurring earnings of S$86m (-23% QoQ) came in slightly under our expectations due to lower than expected N&M advertisement revenue. FY12 recurring earnings were up a marginal 0.3% to S$410m. We lowered our FY13 PATMI by 7% due to lower advert revenue and higher operating expenses. SPH has declared a final dividend of 17S¢ a share bringing total dividends for FY12 to 24S¢ a share. Going forward we believe SPH’s cash flow is strong enough to sustain a dividend payout of 24S¢ per annum, implying a yield of 5.9%. Maintain NEUTRAL with slightly higher SOTP TP of S$3.95 (from S$3.85 previously) as we roll forward our valuations to FY13. We think SPH’s FY13 dividend yield of 5.9% remains attractive and will cushion any downside in share price, though we see a lack of near term catalysts to drive upside for its core publishing business.

Property segment offset decline in N&M. Property rental income grew 14% in FY12 to S$191m due to a 101% growth in rental income from Clementi Mall to S$37m (on the back of a full year’s operations), as well as a 3% increase in Paragon’s rental income to S$154m (due to higher rental rates). This helped offset weaker Newspaper and Magazine revenue which declined 1% due to weakness from both print adverts as well as circulation revenue. The Seletar Mall, SPH’s latest property project is expected to be completed by end 2014.

Slowdown in Newsprint charge-out rate could bring some cheer. Newsprint charge out rates averaged US$678/MT in FY12 and US$654/MT in 4QFY12. SPH will benefit from current lower rates which are hovering at ~US$600/MT. As such, we have lowered our FY13 charge out rate assumptions by 10%.

SOTP-derived TP of S$3.95. We value the core media segment based on 11x FY13 P/E, Paragon (S$2.5b) 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.

Hold for yield

• FY12 net profit declined 6% – marginally below expectations
  
• Final and special dividend of 17Scts, brings FY12 dividend to 24Scts, similar to FY11
  
• Ad revenue growth to remain lackluster on an uncertain economic outlook, FY13-14F earnings trimmed 3-5%
  
• Hold for 5.9% yield, TP stays at S$4.01
  

FY12 marginally below expectations. FY12 results ended 6% down y-o-y to S$365.6m on the back of a drop in print ad revenues (-0.7%), higher operating expenses (+4.5%) and lower investment income (-35%). Notwithstanding the weaker profits, dividends were in line with expectations with a final and special dividend of 17 Scts proposed to be paid on 21 Dec 2012. This brings FY12 dividends to 24 Scts, similar to FY11 and equates to a yield of c.5.9%.

Weaker newspaper ad revenues. Newspaper print ad revenues dropped by 5% y-o-y in 4Q12, larger than the – 1.5% y-o-y decline in 3Q12. Display and classified ads dipped by 3% and 9% y-o-y, respectively. We believe the uncertain global economic climate and slower GDP growth for Singapore will continue to weigh on print ad revenues for SPH. Our economist recently revised his Singapore GDP forecasts down to 1.8% and 3.2% for 2012 and 2013, from 2.5% and 3.5%, respectively.

Hold for 5.9% yield, TP remains at S$4.01. We have revised down our ad revenue growth in FY13F to zero growth, from 2% previously. Our forecasts are hence lowered by 4.6%/ 3.4% for FY13F/ 14F. This is partially mitigated by a lower newsprint charge out rate assumed at US$640/mt and US$600/mt in FY13F and FY14F respectively. Our sum-of-parts TP remains S$4.01 as we roll our valuation base to FY13F. While we see lackluster growth for the group mainly due to economic headwinds coupled with a higher cost environment, we believe downside should be supported by the payment of 17Scts dividends in Dec, and a relatively healthy dividend yield of 5.9% based on our expectations of 24Scts dividend in FY13F.

Hold for yield

• FY12 net profit declined 6% – marginally below expectations
  
• Final and special dividend of 17Scts, brings FY12 dividend to 24Scts, similar to FY11
  
• Ad revenue growth to remain lackluster on an uncertain economic outlook, FY13-14F earnings trimmed 3-5%
  
• Hold for 5.9% yield, TP stays at S$4.01
  

FY12 marginally below expectations. FY12 results ended 6% down y-o-y to S$365.6m on the back of a drop in print ad revenues (-0.7%), higher operating expenses (+4.5%) and lower investment income (-35%). Notwithstanding the weaker profits, dividends were in line with expectations with a final and special dividend of 17 Scts proposed to be paid on 21 Dec 2012. This brings FY12 dividends to 24 Scts, similar to FY11 and equates to a yield of c.5.9%.

Weaker newspaper ad revenues. Newspaper print ad revenues dropped by 5% y-o-y in 4Q12, larger than the – 1.5% y-o-y decline in 3Q12. Display and classified ads dipped by 3% and 9% y-o-y, respectively. We believe the uncertain global economic climate and slower GDP growth for Singapore will continue to weigh on print ad revenues for SPH. Our economist recently revised his Singapore GDP forecasts down to 1.8% and 3.2% for 2012 and 2013, from 2.5% and 3.5%, respectively.

Hold for 5.9% yield, TP remains at S$4.01. We have revised down our ad revenue growth in FY13F to zero growth, from 2% previously. Our forecasts are hence lowered by 4.6%/ 3.4% for FY13F/ 14F. This is partially mitigated by a lower newsprint charge out rate assumed at US$640/mt and US$600/mt in FY13F and FY14F respectively. Our sum-of-parts TP remains S$4.01 as we roll our valuation base to FY13F. While we see lackluster growth for the group mainly due to economic headwinds coupled with a higher cost environment, we believe downside should be supported by the payment of 17Scts dividends in Dec, and a relatively healthy dividend yield of 5.9% based on our expectations of 24Scts dividend in FY13F.

Slightly weaker ending quarter

Slightly below our expectations; 4QFY12 recurring earnings fell 17% YoY. 4QFY12 recurring earnings of S$86m (-23% QoQ) came in slightly under our expectations due to lower than expected N&M advertisement revenue. FY12 recurring earnings were up a marginal 0.3% to S$410m. We lowered our FY13 PATMI by 7% due to lower advert revenue and higher operating expenses. SPH has declared a final dividend of 17S¢ a share bringing total dividends for FY12 to 24S¢ a share. Going forward we believe SPH’s cash flow is strong enough to sustain a dividend payout of 24S¢ per annum, implying a yield of 5.9%. Maintain NEUTRAL with slightly higher SOTP TP of S$3.95 (from S$3.85 previously) as we roll forward our valuations to FY13. We think SPH’s FY13 dividend yield of 5.9% remains attractive and will cushion any downside in share price, though we see a lack of near term catalysts to drive upside for its core publishing business.

Property segment offset decline in N&M. Property rental income grew 14% in FY12 to S$191m due to a 101% growth in rental income from Clementi Mall to S$37m (on the back of a full year’s operations), as well as a 3% increase in Paragon’s rental income to S$154m (due to higher rental rates). This helped offset weaker Newspaper and Magazine revenue which declined 1% due to weakness from both print adverts as well as circulation revenue. The Seletar Mall, SPH’s latest property project is expected to be completed by end 2014.

Slowdown in Newsprint charge-out rate could bring some cheer. Newsprint charge out rates averaged US$678/MT in FY12 and US$654/MT in 4QFY12. SPH will benefit from current lower rates which are hovering at ~US$600/MT. As such, we have lowered our FY13 charge out rate assumptions by 10%.

SOTP-derived TP of S$3.95. We value the core media segment based on 11x FY13 P/E, Paragon (S$2.5b) 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 Aug 12.