SPH posts $75.4m Q2 net profit

33.5% profit fall due to condo completion; core business revenue stays healthy

SINGAPORE Press Holdings (SPH) has reported a net profit of $75.4 million for its second quarter ended Feb 28, 2011, a year-on-year fall of 33.5 per cent. This was due to the absence of profit contribution this time round from its Sky@eleven condominium development, which was completed in May 2010.

In Q2 FY2010, recurring earnings included a $36.9 million profit recognition from Sky@eleven.

Operating revenue dropped 9.7 per cent to $287.82 million because of a 53.7 per cent fall in property operating revenue to $39.5 million. Excluding the effect of Sky@eleven revenue of $51.4 million for the second quarter last year (Q2 FY2010), group operating revenue rose $20.5 million (7.7 per cent) with increases across all segments. Operating revenue for the newspaper and magazine segment, the group’s core business, stayed healthy, rising $11.6 million (5.2 per cent) to $234.3 million. Print advertisement revenue increased $10.9 million (6.6 per cent) to $176.3 million, driven by strong showing in display and recruitment advertisements. Circulation revenue held steady at $50.3 million.

Rental income from shopping mall Paragon increased $4.2 million (12.9 per cent) as a result of higher rental rates achieved and incremental rental from the facade enhancement. Clementi Mall also registered its maiden income upon partial commencement of operations in January.

The period saw materials, consumables and broadcasting costs higher by $4.1 million (11.9 per cent), partly due to increase in newsprint costs of $3.1 million (15.3 per cent). Staff costs were up $6.9 million (8.3 per cent) mainly from salary increments and increased headcount to support new businesses and initiatives. Costs for Q2 FY2010 were also lower because of the government jobs credit.

Other operating expenses rose 40 per cent to $54.4 million, partly due to higher premises costs and other overheads. Earnings per share for Q2 fell to five cents from seven cents. An interim dividend of seven cents per share was declared.

For the first half, net profit slid 31.1 per cent to $177.7 million. H1 2010 recurring earnings included Sky@eleven profit recognition of $87.2 million. Operating revenue dipped 9.8 per cent to $606.5 million. Excluding the Sky@eleven $121.5 million revenue effect, group revenue rose $55.4 million (10 per cent).

On the outlook for FY 2011, SPH CEO Alan Chan said: ‘Singapore’s economic outlook remains positive, barring any deterioration arising from global uncertainties. The group’s print advertisement revenue is expected to move in tandem with the performance of the Singapore domestic economy. Our two property assets, Clementi Mall and Paragon, are both fully leased and are expected to contribute a steady stream of rental income to the group.’

SPH closed two cents up at $3.98 yesterday.

The Clementi Mall is fully leased

THE Clementi Mall, in which Singapore Press Holdings has a 60 per cent stake, is fully leased ahead of project completion – with about half of its tenants opening for business today and the remaining tenants following soon after.

All the shops at Basement 1 and Level 1, including anchor tenant FairPrice Finest, have been open for business since January, after the six-storey retail development in Clementi town centre obtained its first temporary occupancy permit.

Anchor tenants BHG and Foodfare foodcourt will open their doors today and tomorrow respectively. Other anchor tenants, such as Best Denki and Popular Bookstore, will open in mid-April.

Clementi Public Library is scheduled to open on April 23.

The bridge which links the mall directly to the Clementi MRT station on Level 3 will open to the public today, allowing shoppers access via the station during trading hours.

Fashion and accessories labels such as Charles & Keith, Cache Cache, Cotton On, Denizen, Giordano, Skechers and Samuel & Kevin can be found on Level 3.

Lifestyle, sports and electrical shops such as Aussino, Arena, Challenger and World Of Sports will be on Level 4.

Family and kids brands such as Chateau De Sable, Kiddy Palace and Mini Princess will be on Level 5. The Clementi public library and Popular Bookstore will also be located on this level.

The development, owned by CM Domain, has about 190,000 square feet of retail space, including a basement shopping level and a basement carpark with about 160 parking lots.

CM Domain, in which SPH owns a 60 per cent stake through subsidiary Times Properties, won the tender for the 99-year leasehold property with its bid price of $541.9 million in November 2009.

The other joint owners of CM Domain are NTUC Income Insurance Co-operative Limited (20 per cent) and NTUC FairPrice Co-operative Limited (20 per cent).

SPH poised to launch products for iPad

It has been waiting for Apple to come up with a better policy for publishers

THE renewed popularity of tablet PCs presents a lifeline for the newspaper industry to survive in the digital age, but key to the equation is ensuring that the content provided remains compelling and unique, said Patrick Daniel, editor-in-chief of the English and Malay newspaper division of Singapore Press Holdings (SPH).

Speaking at the division’s annual awards ceremony yesterday, he revealed that SPH would soon be launching products for Apple’s iPad. The group will also introduce applications for the iPhone, and is looking to launch Android products using Google’s OnePass scheme.

‘I’m excited . . . tablets are an ideal form to engage a younger, more sophisticated audience. The key will again be the quality and uniqueness of our content, as well as the way we bundle our print and digital products in a winning strategy,’ said Mr Daniel.

While many newspapers across the globe had quickly launched iPhone and iPad editions of their products following the popularity of these gadgets, SPH had refrained from doing so, preferring to wait until Apple came up with a better policy for publishers, he said.

‘We are clear that we won’t give our products away for free. We want to sell subscriptions, not applications at US$1.99 a pop, and we want to bundle it with print,’ he added.

That dream can now come true. Apple recently rolled out a new subscription service to all publishers of content-based applications that allows them to set the price and length of subscription for their products.

Apple also made clear that publishers will be able to sell content outside the application store – which will allow publications to bundle their print, iPad and iPhone products.

Part of the reason that SPH could afford to be patient was that its print business is still alive and kicking, unlike that of many of its counterparts in the US and Europe. The print business continues to be the main profit and dividend generator for SPH.

Last year, total revenues from the group’s newspaper and magazine segment rose by almost 10 per cent from a year earlier to $974 million, accounting for 71 per cent of the group’s overall turnover.

‘The sun has not yet set on us,’ said Mr Daniel.

Still, there is no doubt that in an increasingly digital world, newspaper companies need to have a presence – and a strong one at that – outside the print medium.

On top of launching applications for tablet PCs and the iPhone, SPH will also be relaunching its online products, said Mr Daniel.

The Straits Times, for one, will integrate citizen journalism website Stomp (Straits Times Online Mobile Print) and online television service provider RazorTV under a revamped website.

The Business Times, too, will freshen up its website and launch a financial portal that will see it ride on synergies with stock portal shareinvestor.com – a subsidiary of SPH.

‘Success in the digital space will not be easy, but we can look forward to a challenging and exciting future,’ said Mr Daniel.

The bellwether delivers

Event

• Singapore Press Holdings’ (SPH) 1QFY Aug11 revenue met consensus forecast at $321.4m. However, operating profit slid 27% YoY to $116.3m in the absence of property development profits and higher staff costs. Nonetheless, we believe the core media business will continue to underpin its stable dividend yield of 5.9%. Maintain BUY with a target price of $4.75.

Our View

• The Newspaper and Magazine segment recorded a credible increase in revenue of 9.2% YoY and 9.6% QoQ to $265.5m, driven by higher display and recruitment advertising revenues. Margins contracted slightly on rising newsprint prices, but lower newsprint consumption as a result of improved print technology mitigated the impact.

• Rental income from Paragon grew 26% YoY to $36.8m thanks to positive rental reversions and an enlarged net lettable area. Clementi Mall, to be fully opened in April 2011, is expected to secure full tenancy. To date, 85% of retail space has been taken up. We expect rental income to make up a higher proportion of group revenue in FY Aug11 (12% vs 9.7% in FY Aug10).

• SPH remains financially strong with an investible fund of $1.4b. With as many as five commercial sites in suburban areas available under the Government Land Sales programme, a land acquisition could be on the cards. However, competition for commercial sites will be intense and shareholders could be rewarded with a return of surplus capital if an acquisition does not materialise.

Action & Recommendation

We raise our revenue and net profit forecasts for FY Aug11 by 8% and 21%, respectively, to reflect higher rental expectations from Clementi Mall and better‐than‐expected performance from the core media business. We also increase our FY Aug11F DPS to 23.4 cents (from 17.6 cents) based on a 100% payout (previously assumed 90% payout). Maintain BUY with a target price of $4.75.

No catalyst, but hold for yield

At a Glance

• 1Q within expectations; EBIT at S$126.8m dropped by -23% on absence of Sky11 contribution, else would have been up 11% yoy.

• Ad revenues up by 13% yoy while rental surged 25% yoy on rental increase and higher lettable area, but offset by higher costs, namely staff and consumables.

• Clementi Mall achieved 85% commitment, and Group expects full tenancy commitment in Apr’11.

• Maintain Hold, sum-of-parts TP: S$4.37.

Comment on Results

1Q within expectations; Revenue and EBIT dropped respectively by 10% and 23% yoy to S$318.7m and S$126.8m respectively, on the absence of Sky@Eleven (Sky11) property development contribution, which was completed in May’10. Else, revenue and EBIT would have increased by 12% and 11%, respectively.

Higher revenues offset by costs. Ad revenues grew by 13.1% yoy to S$206.3m while rental surged 25% yoy to S$36.8m on the back of rents revision and higher lettable area from Paragon’s façade enhancement. Circulation revenue dipped by 2.1% on lower copies sold. Costs also crept up in tandem, largely driven by staff costs (+16% yoy to S$87m) due to partial restoration of pay, higher headcount and expiration of Jobs Credits (c.S$1/mth).

Clementi Mall opens with 85% tenancy committed. Clementi Mall has had its soft opening. Current tenancy commitment is at c.85%, and management expects full commitment when it officially opens in Apr 2011. The Group will continue to focus on its core business, and will be on the look out for retail properties.

Recommendation

Maintain Hold, TP: S$4.37. We expect ad revenues to grow at a slower pace, in line with the economy, after a rebound in FY10. This will be partially offset by higher staff and newsprint costs. We maintain our Hold recommendation, as we see no significant catalyst ahead, while share price should be supported by a decent yield of c.6%.