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%.

Steady ad demand

• In line; maintain Neutral. 1Q11 net profit of S$102.3m met our forecast and consensus’s, forming 25% of our FY11 estimate. Net profit was lower by 29% yoy due to the absence of property development profit from Sky@eleven. Stripping out S$50.3m of development profit in 1Q10, 1Q11 net profit would have climbed 8.4% yoy on stronger print ad and rental profit. We keep our earnings estimates and sumof-the-parts target price of S$4.51. Maintain Neutral in view of rising newsprint costs and risks of lower property-ad demand following recent tightening in the property market. SPH should, however, be supported by dividend yields of 6-7% expected for FY11-13. Re-rating catalysts could come from higher-than-expected print-ad revenue and accretive property acquisitions, in our view.

• Strong print ad and rental. Excluding S$70.1m of revenue from Sky@eleven in 1Q10, revenue grew 12.3% yoy on stronger print ad (+13%) and rentals from Paragon (+26%). Display ads benefited from property advertising while rentals grew on positive rental revisions and increased floor area at Paragon. Circulation revenue fell 2.1% on lower copies sold. Staff costs rose 15.6% on higher variable bonus provisions and partial wage restoration while newsprint costs rose 13% on higher consumption and higher average charge-out prices of US$607/MT.

• Outlook. Ad demand should continue to grow along with the economy. The recent tightening in the property market, however, could affect property-buying sentiment and thus ad demand. Newsprint prices are expected to trend higher though a weaker US$ should provide some reprieve. Spot prices for newsprint are about US$650/MT and SPH is covered up till May 11. It is also trying to lift its average ad ratio above 60% to reduce newsprint consumption.

• Clementi Mall. About 85% of the retail space at 60%-owned Clementi Mall has been leased out and SPH expects full tenancy commitment when the mall is officially opened in Apr 11. Lower floor levels housing supermarket Fairprice Finest and other shops have started operating. Other major tenants include the Land Transport Authority, Foodfare Foodcourt and National Library Board.

Steady ad demand

• In line; maintain Neutral. 1Q11 net profit of S$102.3m met our forecast and consensus’s, forming 25% of our FY11 estimate. Net profit was lower by 29% yoy due to the absence of property development profit from Sky@eleven. Stripping out S$50.3m of development profit in 1Q10, 1Q11 net profit would have climbed 8.4% yoy on stronger print ad and rental profit. We keep our earnings estimates and sumof-the-parts target price of S$4.51. Maintain Neutral in view of rising newsprint costs and risks of lower property-ad demand following recent tightening in the property market. SPH should, however, be supported by dividend yields of 6-7% expected for FY11-13. Re-rating catalysts could come from higher-than-expected print-ad revenue and accretive property acquisitions, in our view.

• Strong print ad and rental. Excluding S$70.1m of revenue from Sky@eleven in 1Q10, revenue grew 12.3% yoy on stronger print ad (+13%) and rentals from Paragon (+26%). Display ads benefited from property advertising while rentals grew on positive rental revisions and increased floor area at Paragon. Circulation revenue fell 2.1% on lower copies sold. Staff costs rose 15.6% on higher variable bonus provisions and partial wage restoration while newsprint costs rose 13% on higher consumption and higher average charge-out prices of US$607/MT.

• Outlook. Ad demand should continue to grow along with the economy. The recent tightening in the property market, however, could affect property-buying sentiment and thus ad demand. Newsprint prices are expected to trend higher though a weaker US$ should provide some reprieve. Spot prices for newsprint are about US$650/MT and SPH is covered up till May 11. It is also trying to lift its average ad ratio above 60% to reduce newsprint consumption.

• Clementi Mall. About 85% of the retail space at 60%-owned Clementi Mall has been leased out and SPH expects full tenancy commitment when the mall is officially opened in Apr 11. Lower floor levels housing supermarket Fairprice Finest and other shops have started operating. Other major tenants include the Land Transport Authority, Foodfare Foodcourt and National Library Board.

Robust 1Q11 performance

Robust underlying performance in 1Q11. Singapore Press Holdings (SPH) kicked off its FY11 on sound footing with 1Q11 revenue of S$318.7m (down 10.0% YoY) and net profit of S$102.3m (down 29.3% YoY). The decline was attributed to the absence of revenue recognition from the group’s Sky@eleven development, which was completed in May 10. Excluding Sky@eleven’s contribution in 1Q10, the group’s comparable revenue would have grown by 12.3% YoY while recurring earnings would have improved by 6.6% YoY. Sequentially, these represented a 8.6% improvement in revenue and a 35.9% jump in net profit. No dividends were declared for 1Q11.

Driven by broad-based growth across all segments. Stripping away Sky@eleven’s contribution in 1Q10, SPH’s comparable performance was driven by broad-based growth across all segments. The Newspaper and Magazine segment delivered a 9.2% YoY increase in sales to S$265.5m, buoyed by a 13.1% gain in print advertisement revenue thanks to stronger demand for display and recruitment advertisements. Rental income from Paragon improved by 26.1% to S$36.8m on the back of rental revisions and increased floor area following recent facade enhancement initiatives. Revenue from the group’s other businesses rose 45.7% to S$16.4m thanks to stronger performance from its internet, outdoor and events management businesses. Despite higher staff and newsprint costs, operating margins were well-controlled at 39.8% in 1Q11 vs. 40.3% in 1Q10.

Economic recovery and Clementi Mall to buoy future performance; maintain BUY. Going forward, we expect SPH’s growth to be supported by (i) stronger advertising demand along with Singapore’s sustained economic growth coupled with improving consumer confidence, and (ii) contributions from Clementi Mall, which is slated for official opening in Apr 11. 85% of retail space has already been taken up to-date, and management expects full tenancy commitment when the mall officially opens. We are keeping our earnings projections and S$4.59 fair value estimate intact. Dividend yield is attractive at ~6%. We maintain our BUY rating on SPH. Key risks include (i) inflationary cost pressure arising from higher newsprint prices, as well as (ii) caps on Clementi Mall’s rental rate – our Reit analyst has cautioned that new supply of retail space could depress rental growth at neighbourhood malls.

Robust 1Q11 performance

Robust underlying performance in 1Q11. Singapore Press Holdings (SPH) kicked off its FY11 on sound footing with 1Q11 revenue of S$318.7m (down 10.0% YoY) and net profit of S$102.3m (down 29.3% YoY). The decline was attributed to the absence of revenue recognition from the group’s Sky@eleven development, which was completed in May 10. Excluding Sky@eleven’s contribution in 1Q10, the group’s comparable revenue would have grown by 12.3% YoY while recurring earnings would have improved by 6.6% YoY. Sequentially, these represented a 8.6% improvement in revenue and a 35.9% jump in net profit. No dividends were declared for 1Q11.

Driven by broad-based growth across all segments. Stripping away Sky@eleven’s contribution in 1Q10, SPH’s comparable performance was driven by broad-based growth across all segments. The Newspaper and Magazine segment delivered a 9.2% YoY increase in sales to S$265.5m, buoyed by a 13.1% gain in print advertisement revenue thanks to stronger demand for display and recruitment advertisements. Rental income from Paragon improved by 26.1% to S$36.8m on the back of rental revisions and increased floor area following recent facade enhancement initiatives. Revenue from the group’s other businesses rose 45.7% to S$16.4m thanks to stronger performance from its internet, outdoor and events management businesses. Despite higher staff and newsprint costs, operating margins were well-controlled at 39.8% in 1Q11 vs. 40.3% in 1Q10.

Economic recovery and Clementi Mall to buoy future performance; maintain BUY. Going forward, we expect SPH’s growth to be supported by (i) stronger advertising demand along with Singapore’s sustained economic growth coupled with improving consumer confidence, and (ii) contributions from Clementi Mall, which is slated for official opening in Apr 11. 85% of retail space has already been taken up to-date, and management expects full tenancy commitment when the mall officially opens. We are keeping our earnings projections and S$4.59 fair value estimate intact. Dividend yield is attractive at ~6%. We maintain our BUY rating on SPH. Key risks include (i) inflationary cost pressure arising from higher newsprint prices, as well as (ii) caps on Clementi Mall’s rental rate – our Reit analyst has cautioned that new supply of retail space could depress rental growth at neighbourhood malls.