Yield Still Attractive

Results in line. SPH announced its FY8/12 results, which were broadly in line with market expectations. Top line registered a 1.8% yoy growth to SGD1.27b, driven by strong performance from the Property segment (+14% yoy) despite marginally decline from Newspaper & Magazine segment (-1% yoy). Core earnings increased by 0.3% yoy. Maintain BUY with target price of SGD4.50, based on SOTP valuation.

Expecting improved core ad business going forward. SPH’s core print advertisement revenue dropped by 1% yoy in FY12 due to weak economy condition. However the advertising demand for property, fashion and automobile sector remains strong. We expect ad revenue to bottom out in FY13 in line with recovery in Singapore economy.

Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In FY12, rental income rose by SGD23.5m (+12.8%) to SGD191.4m. This was driven by higher rental rate in Paragon as well as contribution from full operation of Clementi Mall. As Clementi Mall has not achieved its maximum rental rate and demand in Orchard Road remains robust, we believe there is still upside from property rental income for FY13.

Operating margin sustained at a healthy 32%. Cost was well managed in FY12, only marginally increased by 2.5% yoy, thanks to low newsprint cost and low interest rate. Operating profit margin remained above 30% level and we are confident that 30% OP margin is sustainable going forward.

Full year dividends 24cents, yield still attractive. Full year dividends of 24cents are the same as last year. We expect 25cents dividends for FY13 implying 6.2% dividends yield at current price of SGD4.07, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is now 443bps, above historical average of 350bps. We maintain our BUY call with target price of SGD4.50 based on SOTP valuation.

• The final dividend of 17 cents (normal 9 and special 8) brings the total for the fiscal year ended Aug ’12 to 24 cents (unchanged from the year before), for a yield of 5.9%.
  
• This would have been a greater plus if the board had committed to a clearer dividend policy, of say a minimum or a certain percentage of recurring earnings, even if it were to mean a lower yield.
  
• Note that the $386.37 mln dividend in respect of ye Aug ’12 already represents 94% of recurrent earnings.
  
• Results for ye Aug ’12 (net profit down 5.9% to $365.54 mln) are in line with recent past, with decline in the core newspapers / magazines business being offset by property contributions. (The latest decline was also blamed on the drop in investment income.)
  
• Classified advertisements (almost 30% of display ads) continued to decline, by 8% in the latest fiscal year.
  
• Contributions from the Clementi Mall have replaced Sky @ 11, adding to Paragon. (The Seletar Mall, a 70-30 JV with UE is scheduled for completion in late calendar year 2014.)
  
• The 5.9% yield remains the sole reason for maintaining BUY.

Chugging along

The underlying business continues to chart a steady course, allowing management to declare a 24Scts dividend again. Earnings were lower because of weaker investment income. Property remains the star performer and could help make FY13's dividend payout even larger.

FY12 earnings came in largely in line, at 95% of our and consensus estimates. We tweak our FY13-15 numbers slightly on lower circulation revenue leading to a marginally lower SOP target price. Our Outperform rating is maintained; stronger rental income and ad revenue growth are rerating catalysts.

FY12 review

Operating profit came in slightly higher than last year, but earnings were lower yoy on weaker investment income. Management guided that newsprint charge out rates have come down slightly and if they stay around the current level, margins are likely to creep up in 2H13. FY12 saw the property arm continue to provide robust growth, offsetting the gradual decline in circulation revenue (-2.7% yoy). Ad revenue (-0.7% yoy) was down due to fewer property advertisements after the government introduced cooling measures.

Property outperformance

We expect the property arm to continue being the star performer in FY13. This year saw rental increases at both Paragon (+S$4.6m, +3.1% yoy) and Clementi Mall on the back of a full year of operations (+S$18.6m, + 3.1% yoy). As Clementi Mall matures, rentals will continue to see good upside. The expected completion of Seletar Mall by end-FY14 should further increase the group's recurring earnings base.

Dividends may possibly grow

We think there is a chance dividends may increase on higher recurring profit as Clementi Mall matures. The 24Scts of dividend declared represents a yield of 6% The balance sheet is still in good shape; net gearing stands at 0.4x.

Chugging along

The underlying business continues to chart a steady course, allowing management to declare a 24Scts dividend again. Earnings were lower because of weaker investment income. Property remains the star performer and could help make FY13's dividend payout even larger.

FY12 earnings came in largely in line, at 95% of our and consensus estimates. We tweak our FY13-15 numbers slightly on lower circulation revenue leading to a marginally lower SOP target price. Our Outperform rating is maintained; stronger rental income and ad revenue growth are rerating catalysts.

FY12 review

Operating profit came in slightly higher than last year, but earnings were lower yoy on weaker investment income. Management guided that newsprint charge out rates have come down slightly and if they stay around the current level, margins are likely to creep up in 2H13. FY12 saw the property arm continue to provide robust growth, offsetting the gradual decline in circulation revenue (-2.7% yoy). Ad revenue (-0.7% yoy) was down due to fewer property advertisements after the government introduced cooling measures.

Property outperformance

We expect the property arm to continue being the star performer in FY13. This year saw rental increases at both Paragon (+S$4.6m, +3.1% yoy) and Clementi Mall on the back of a full year of operations (+S$18.6m, + 3.1% yoy). As Clementi Mall matures, rentals will continue to see good upside. The expected completion of Seletar Mall by end-FY14 should further increase the group's recurring earnings base.

Dividends may possibly grow

We think there is a chance dividends may increase on higher recurring profit as Clementi Mall matures. The 24Scts of dividend declared represents a yield of 6% The balance sheet is still in good shape; net gearing stands at 0.4x.

Low growth but reasonable yields

• Core 3Q earnings in line with expectations

• Muted growth on cautious GDP outlook

• Dividend yield remains attractive at 6%

• Maintain Hold, TP unchanged at S$4.01

Highlights

Core 3Q results in line. Headline net profit fell 11.5% y-o-y to S$99.8m, slightly below our expectations, largely due to lower investment income (S$9.5m, -60%) and higher staff costs (S$94m, – 6%) as a result of bonus provisions. Core operations were otherwise resilient with revenue growth of 1%, helped by strong property rental revenue (S$48.7m, +13%). Despite worries about the global economy, print ad revenues remained resilient and registered marginal growth of 0.3%. This was offset, however, by slowing circulation revenue (-3% y-o-y to S$52.4m).

Revenue from the newspaper and magazine segment stayed relatively flat at S$261m vs S$263m in 3Q11. 9M12 earnings of S$281.4m now account for 72% of FY12’s earnings forecast, in line with expectations considering lower earnings, due to lower investment income. Investment income was strong in FY11 due to non-recurring recovery of losses arising from the Lehman crisis.

Our View

Growing rental income is key to growing volatility in media sector. We see SPH’s growing rental income as a key bulwark against potential volatility in ad spend and weakening circulation. The property segment now contributes 15% of revenues (13% last year) and 22% of profit before tax (14% last year). In contrast, newspaper and magazine’s PBT declined from S$95.7m to S$91.6m. The property segment has therefore become increasingly important in mitigating earnings volatility in the media segment, even as GDP expectations for Singapore this year are not expected to outpace last year.

Earnings growth likely to be muted, in line with Singapore’s cautious GDP growth expectations. Our DBS economist is forecasting GDP growth at 3.5% vs 4.9% last year. Since ad spend correlates well with Singapore’s GDP growth, we remain conservative over such growth in the coming quarters. We have imputed 2% growth in Ad Ex in FY13F, a marginal growth from our forecast of a 0% growth in FY12F.

Recommendation

Maintain Hold for 6% yield, TP unchanged at S$4.01. Even though growth may not be exciting, the stock is still attractive for its dividend yield of 6%. We therefore maintain HOLD with our sum-of-parts derived TP unchanged S$4.01.