SPH posts Q1 net profit of $102.3m

Drop of 29% mainly due to absence of previous profit from Sky@eleven project

SINGAPORE Press Holdings (SPH) yesterday reported a first-quarter net profit of $102.3 million, a 29 per cent decline mainly because performance in the year-ago quarter was boosted by profit from its Sky@eleven property project.

In Q1 last year, the group posted net profit of $144.7 million that included a $50.3 million profit from its completed Sky@eleven condominium development, whose final profit was recognised in Q4 2010.

Group operating revenue fell 10 per cent to $318.7 million for the three months ended Nov 30, 2010. Again, this was because revenue from Sky@eleven of $70.1 million was recognised in the corresponding quarter last year; excluding which revenue rose 12 per cent. Excluding Sky@eleven profit for Q1 2010, the group’s recurring earnings grew 6.6 per cent, or $7.2 million.

Earnings per share for the first quarter thus fell to six cents from nine cents for the same quarter last year. But net asset value per share at end-November rose to $1.46, from $1.39 at the end of FY2010 on Aug 31 last year.

The core newspaper and magazine segment generated revenue of $265.5 million for the group, 9 per cent up from the same quarter a year ago. More display and recruitment ads drove print advertisement revenue 13 per cent higher to $206.3 million, offsetting the 2.1 per cent dip in circulation revenue as fewer copies were sold.

Under the property division, Paragon generated 26 per cent more rental income for Q1 than it did a year ago, partly due to rental revisions and increased floor area after a facade enhancement.

SPH also said that 85 per cent of Clementi Mall’s retail space has been taken up so far, and stores on the lower levels have opened for business. Full tenancy commitment is expected by the official opening in April.

SPH’s other arms – such as the Internet, outdoor advertising and events management businesses – saw operating revenue rise 46 per cent to $16.4 million.

On the costs front, higher newsprint and other production costs drove materials, consumables and broadcasting costs 15 per cent higher, by $5.4 million. Newsprint prices are expected to rise moderately this year due to cost pressures and rising demand, the group said.

Staff costs rose 16 per cent too, due to higher variable bonus provisions and partial wage restorations. The wage bill for Q1 2010 had been lower, thanks to the Jobs Credit scheme.

SPH chief executive Alan Chan said that the group’s advertising revenue would continue to track the Singapore economy, now expected to grow at a modest pace. The board expects the recurring earnings of SPH’s media and property businesses for the current financial year to be satisfactory.

SPH shares closed flat at $3.98 before its results were announced yesterday.

SPH seeks opportunities in property, new media

Group will continue to focus attention on core print business

SINGAPORE Press Holdings (SPH) is actively seeking out fresh opportunities for its property and new media arms while enhancing its core print business, the group’s chairman and management told shareholders yesterday.

Shareholders raised a couple of queries over whether dividend yields might fall now that the final contributions from SPH’s Sky@eleven condominium project have been recognised.

Chief executive Alan Chan said that while Sky@eleven was indeed a ‘one-off project’, the group’s property division remains on the look-out for opportunities.

He cited its recent bid for a residential-commercial site at Bedok Town Centre, which was the second highest after CapitaLand joint venture’s bid, as an example of active participation in competitive tendering for projects with high potential. Clementi Mall will begin to contribute a stream of rental income once it is operational early next year, he said.

Acknowledging that shareholders had gained in recent years from the recurring profits Sky@eleven brought, Mr Chan said that the challenge would be for the group to now find new businesses to make up for the difference. These would include, among others, its stake in the OpenNet, which is building the optical fibre network for Singapore’s Next Generation Nationwide Broadband Network, as well acquisitions to strengthen its events and exhibition services arm.

SPH chairman Tony Tan also told shareholders, who filled the News Centre’s auditorium yesterday, that the media and property group would ‘continue to focus our attention on our core print business’, improving content and widening readership. At the same time, ‘we will keep growing our adjacent businesses to secure the company’s long-term growth’, he added.

In the light of how the Internet has challenged the traditional media industry worldwide, new media is ‘an investment we cannot neglect’ to prepare SPH for the future, Mr Chan said in response to questions on when the group’s new media ventures would turn profitable.

He added that its ‘first-generation products’, such as the newspapers’ websites, are in fact already profitable, though ‘second-generation’ ones such as STOMP, RazorTV and ST701 are still being nurtured.

All resolutions to re-appoint or re-elect the board’s directors, including Ascendas CEO Chong Siak Ching, who was appointed as a non-executive director in October, were duly passed by shareholders yesterday.

SPH to make full restoration of pay cuts in January

SINGAPORE Press Holdings (SPH) will be restoring from January the remaining portion of pay cuts that were introduced in April last year.

The media group said yesterday that it will also give a special one-off sum to staff to thank them for the sacrifice and contributions they have made. The one-off payment will be made by January, together with the usual increments, and profit and performance-related bonuses.

In March last year, SPH announced pay cuts of between 2 and 10 per cent of basic monthly salaries, depending on salary levels. The measure was taken in the face of a weaker advertising market and an uncertain business environment resulting from the worldwide financial crisis in 2008 and 2009.

The pay cuts – which did not affect staff earning $2,000 or less in monthly pay – took effect on April 1, 2009.

In January this year, SPH restored half of the pay cuts and made special payouts to staff who had taken a pay cut in 2009. In July, it made another special payout to staff for the pay cut for the first half of this year.

The restoration of the remaining portion from January next year will effectively restore the pay cuts in full.

SPH chief executive officer Alan Chan said: ‘2009 was a difficult year for many companies in Singapore and worldwide. SPH reacted promptly by implementing cost-cutting measures, which included wage cuts across the board. This has helped the group in maintaining its profits in the last financial year.’

SPH’s net profit for the full year ended Aug 31, 2010, rose 18 per cent to $498 million from last year’s $422 million. This was boosted by a rebound in advertisement sales and from profits from its Sky@eleven property project. It also achieved record operating revenue of $1.38 billion – up 6.1 per cent from the preceding financial year. Recurring earnings climbed 8.5 per cent to another record $539 million.

Net income from investments was $39.3 million, a turnaround from last year’s loss of $6.2 million.

The board has also proposed a final dividend of 20 cents a share – comprising a normal dividend of nine cents and a special dividend of 11 cents – to be paid on Dec 23.

SPH shares closed up three cents at $4.25 yesterday.

• We maintain that SPH should best be seen as a semi-bond with an attractive yield.

• SPH has restored the special dividend to 11 cents per share, that was last paid in respect of ye Aug, and which was cut to 9 cents. With unchanged final of 9 cents and interim of 7 cents, the total of 27 cents translates to a 6.4% yield.

• We are confident this can be maintained, even though development profit from Sky @ Eleven has been fully booked in by Q3 ended May ’10, when the TOP was obtained; hence the Q4 profit of $75.28 mln vs $135.10 mln a year ago.

• Key point to note is that advertising sales, SPH’s core business, have been strong, in tandem with the economic growth. Q4’s sales increased 17% y-o-y to $181 mln, bringing the total for the fiscal year to $733.1 mln, 13% up from $648.3 mln a year ago.

• Rentals from Paragon are also on a steady uptrend, up 9% to $133.8 mln in the latest period.

• Note also depreciation (contributing to cash flow) amounted to $69.0 mln in FY09/10.

• Investible funds now stand at about $1.5 bln (38.2% in bonds, an out-performer this year; 22.6% in equities), while borrowings surged to $1.43 bln reflecting the 60% stake in Clementi Mall.

• SPH continues to merit a BUY.

Positives in the price

• Results below; downgrade to Neutral from Outperform. 4Q10 net profit of S$75.3m (-44% yoy) was 21% and 10% below our forecast and consensus respectively on higher-than-expected staff and interest costs. FY10 net profit of S$497.9m (+18% yoy) was 4% below our forecast. Final dividend was 20scts/share (inclusive of special dividend of 11scts), slightly below our 22scts expectation. We cut our FY11-12 earnings estimates by 5% to incorporate higher staff and interest costs, mitigated by stronger print-ad revenue assumptions. We also introduce FY13 estimates and roll forward our valuation to CY12. Accordingly, our SOP-based target price climbs to S$4.51 from S$4.47. SPH’s share price has risen 15% since we upgraded it to Outperform in Jan 10. With positive ad demand likely priced in, we downgrade it to Neutral. Re-rating catalysts could come from higher-than-expected print-ad revenue and accretive property acquisitions, in our view.

• Higher staff costs eroded print-ad revenue growth. SPH’s operating revenue rose 6.1% in FY10 as stronger newspaper and magazine revenue (+9.2%) offset a 2.6% decline in property revenue. Led by strong display and recruitment ads, printad revenue surged 13.1% yoy to S$733.1m, beating our expectations. Circulation revenue, however, dipped 2.4%, while property revenue declined 2.6% on lower contributions from Sky@eleven (temporary occupation permit obtained in May 10) but higher rental contributions from Paragon. While newsprint costs slid 29% yoy, earnings were hurt by increased staff costs (+19%) with higher variable bonus provisions.

• Outlook. SPH expects newsprint prices to climb further in view of industry supply demand imbalances. It intends to raise its average ad ratio to above 60% from sub-60% levels to control its newsprint consumption, without hurting ad revenue. Observing trends of higher ad demand in the ‘Home’ section, it will be increasing its page count for this section from eight to 20. SPH will also step up marketing efforts to stem its dwindling circulation revenue. On the property front, marketing and fit-out work for The Clementi Mall is in progress. SPH remains on the lookout for long-term property investments, with a preference for suburban retail assets for their resilient cash flows.