Steady on all fronts

Event

• Singapore Press Holdings’ (SPH) 2QFY Aug11 revenue met consensus forecast at $287.8m. However, operating profit was lower than expected at $78.9m due to gestation loss from Clementi Mall and the increase in newsprint and staff costs. The Group declared a dividend per share of 7 cents and we believe the steady demand for display advertisement will continue to underpin its dividend yield of 5.6%. Maintain BUY with a target price of $4.68.

Our View

• Some tenants in the basement and on the first floor of Clementi Mall have commenced operations. Management expects the mall, which is 60%-owned by SPH, to be fully operational by 4Q11. Until then, minor gestation loss is still expected. At an average rental rate of $14 psf pm, we estimate the mall will account for about 20% of SPH’s total rental revenue.

• In the core media business, display advertising revenue continues to drive the growth of the newspaper and magazine segment (+5% YoY). Management raised the guidance for average newsprint cost (+8% vs our estimate) due to the gradually rising newsprint spot price but the cost pressure is mitigated by favourable foreign exchange exposure.

• The possibility of a successful participation in the Government Land Sales programme could be a near-term positive catalyst for the group. The white site at Boon Lay Way, next to Jurong East MRT station, seems to be a suitable target, in our view. (Tender submission date: 25 May). We also anticipate the launch of fee-based applications on tablet PCs in the next 12 months, which could enlarge SPH’s revenue stream.

Action & Recommendation

We lower our FY Aug11F-12F net profit by 5-6% to take into account the higher newsprint costs. Our SOTP-based target price is reduced from $4.75 to $4.68. To reflect the earnings revisions, our full-year DPS forecast is lowered from 23.4 cents to 22.2 cents. Maintain BUY.

Steady on all fronts

Event

• Singapore Press Holdings’ (SPH) 2QFY Aug11 revenue met consensus forecast at $287.8m. However, operating profit was lower than expected at $78.9m due to gestation loss from Clementi Mall and the increase in newsprint and staff costs. The Group declared a dividend per share of 7 cents and we believe the steady demand for display advertisement will continue to underpin its dividend yield of 5.6%. Maintain BUY with a target price of $4.68.

Our View

• Some tenants in the basement and on the first floor of Clementi Mall have commenced operations. Management expects the mall, which is 60%-owned by SPH, to be fully operational by 4Q11. Until then, minor gestation loss is still expected. At an average rental rate of $14 psf pm, we estimate the mall will account for about 20% of SPH’s total rental revenue.

• In the core media business, display advertising revenue continues to drive the growth of the newspaper and magazine segment (+5% YoY). Management raised the guidance for average newsprint cost (+8% vs our estimate) due to the gradually rising newsprint spot price but the cost pressure is mitigated by favourable foreign exchange exposure.

• The possibility of a successful participation in the Government Land Sales programme could be a near-term positive catalyst for the group. The white site at Boon Lay Way, next to Jurong East MRT station, seems to be a suitable target, in our view. (Tender submission date: 25 May). We also anticipate the launch of fee-based applications on tablet PCs in the next 12 months, which could enlarge SPH’s revenue stream.

Action & Recommendation

We lower our FY Aug11F-12F net profit by 5-6% to take into account the higher newsprint costs. Our SOTP-based target price is reduced from $4.75 to $4.68. To reflect the earnings revisions, our full-year DPS forecast is lowered from 23.4 cents to 22.2 cents. Maintain BUY.

Rising cost caps profit growth

• 2Q within expectations, but watch for rising cost

• Ad revenues registered growth, albeit at slower rate

• Clementi Mall fully let, a good mall notwithstanding its price; expect to achieve S$14 psf avg rents

• Trim earnings by 4%/1% on higher costs; Maintain Hold, TP: S$4.20. 6% dividend yield should support price.

2Q10 results within expectations. 2Q net profit ended at S$75.4m (-33.5% yoy, -16% qoq) mainly due to absence of Sky@Eleven (Sky11) development profits and effect of cost increases. Revenue dipped by 5% yoy to S$287.8m. Excluding the effect of Sky11, revenue would have grown by 7.5% yoy. As expected, total print ad revenues growth slowed to 6.6% in 2Q11, with flat performance from Classifieds but lifted by Display ads (+8% yoy) and Magazines (+20%). Due to higher staff costs, newsprint charge-out rates and others, 2Q11 EBIT margin fell to 31% vs 2Q10’s 36% (excluding Sky11’s contribution). Interim DPS of 7 Scts was declared.

Clementi Mall: Average rental of S$14psf achieved. Clementi Mall is expected to achieve average rental rate of S$14 psf when fully operational by the financial year-end. This compares favourably with other sub-urban malls such as NorthPoint and Causeway Point (~S$10 – 12.50 psf pm), but below Tampines Mall and Junction8 (~S$14.50 psf pm), which are more matured. Our weekday visit last week showed that crowd was decent, and the opening of the bus interchange should provide more footfalls. We understand management will continue to look out for more investment properties, particularly retail malls.

Trim earnings on higher costs; Hold, TP: S$4.20. We lowered our forecasts by a marginal 4% /1% for FY11F/12F, on higher staff costs and newsprint charge-out rates (US$670/mt). Our sum-of-parts TP is lowered to S$4.20 (previously S$4.37). Despite growing top-line, higher costs will cap bottom-line growth. Maintain Hold, share price will be supported by its attractive dividend yield of 6%, based on our 24 Scts DPS forecast for FY11F.

Rising cost caps profit growth

• 2Q within expectations, but watch for rising cost

• Ad revenues registered growth, albeit at slower rate

• Clementi Mall fully let, a good mall notwithstanding its price; expect to achieve S$14 psf avg rents

• Trim earnings by 4%/1% on higher costs; Maintain Hold, TP: S$4.20. 6% dividend yield should support price.

2Q10 results within expectations. 2Q net profit ended at S$75.4m (-33.5% yoy, -16% qoq) mainly due to absence of Sky@Eleven (Sky11) development profits and effect of cost increases. Revenue dipped by 5% yoy to S$287.8m. Excluding the effect of Sky11, revenue would have grown by 7.5% yoy. As expected, total print ad revenues growth slowed to 6.6% in 2Q11, with flat performance from Classifieds but lifted by Display ads (+8% yoy) and Magazines (+20%). Due to higher staff costs, newsprint charge-out rates and others, 2Q11 EBIT margin fell to 31% vs 2Q10’s 36% (excluding Sky11’s contribution). Interim DPS of 7 Scts was declared.

Clementi Mall: Average rental of S$14psf achieved. Clementi Mall is expected to achieve average rental rate of S$14 psf when fully operational by the financial year-end. This compares favourably with other sub-urban malls such as NorthPoint and Causeway Point (~S$10 – 12.50 psf pm), but below Tampines Mall and Junction8 (~S$14.50 psf pm), which are more matured. Our weekday visit last week showed that crowd was decent, and the opening of the bus interchange should provide more footfalls. We understand management will continue to look out for more investment properties, particularly retail malls.

Trim earnings on higher costs; Hold, TP: S$4.20. We lowered our forecasts by a marginal 4% /1% for FY11F/12F, on higher staff costs and newsprint charge-out rates (US$670/mt). Our sum-of-parts TP is lowered to S$4.20 (previously S$4.37). Despite growing top-line, higher costs will cap bottom-line growth. Maintain Hold, share price will be supported by its attractive dividend yield of 6%, based on our 24 Scts DPS forecast for FY11F.

Persistent cost pressures

• Below; maintain Neutral. 2Q11 core net profit of S$78.4m was below our forecast and consensus, forming 19% of our FY11 estimate. 1H11 core net profit forms 45% of our full-year estimate. The variances came from higher-than-expected other operating expenses, as Clementi Mall only partially commenced in the quarter. Higher staff and newsprint costs also eroded margins in SPH’s print business. An interim dividend of 7 Scts was declared. We reduce our FY11-13 EPS estimates by 3-5%, factoring in higher opex and lower rental contributions from Clementi Mall. Accordingly, our SOP target price falls to S$4.29 from S$4.51. Maintain Neutral in view of continued cost pressures and increasingly remote accretive property acquisitions. SPH should, however, be supported by dividend yields of about 6%.

• Cost pressures in print business. Excluding S$51.4m of revenue from Sky@eleven in 2Q10, operating revenue rose 7.7% yoy on stronger print ad and rentals. Margins were, however, hit by higher staff and newsprint costs. Staff costs rose 8% on salary increments and in the absence of the Jobs Credit scheme while newsprint costs surged 15% on higher charge-out rates (US$651/MT). Management expects newsprint prices to climb higher though the pace should moderate. Spot prices are just below US$700/MT. SPH will be covered up until Dec 11 and guides for an average charge-out of US$675/MT for FY11.

• Clementi Mall yet to contribute fully. Clementi Mall (60% owned) is fully leased. However, with only two levels opened since mid-January, rent-free periods for some tenants and a mismatch with full financial charges and overheads, we believe Clementi Mall lost money in 2Q11. Management expects the mall to be fully operational in 4Q11 and guides for average monthly rentals of S$14 psf, a shade below our previous S$16 psf assumption. We thus lower our rental expectations and valuation of Clementi Mall. Paragon remains 100% occupied with rental income rising 13% yoy on higher rental rates. Management remains on the lookout for acquisitions of retail sites though we believe accretive purchases could become increasingly remote going by developers’ aggressive bids in recent site tenders.