Potential dividend upside in 4Q

At a Glance

• 3Q results expectedly strong; EBIT +36% yoy to S$186.5m

• Print ad revenue showed a stronger growth of 28% yoy to S$204.3m vs 2Q’s growth of 13.4%

• Sky@Eleven received TOP in May’10; earnings slack hereon is expected

• Looking forward to higher-than-expected dividends in 4Q (DBSV estimate 20 Scts); retain Buy and sum-of-parts TP: S$4.42

Comment on Results

Strong 3Q. Revenue grew 27% to S$415m in 3Q, largely contributed by newspaper & magazine operations (+20% yoy), rental revenue (+14%) and final recognition of Sky@Eleven (Sky11) development property (S$101m, +57%).

EBIT grew by a strong 36% to S$186.5m largely arising from lower newsprint charge-out costs (US$529/mt vs US$779/mt in 3Q09), offset partially by higher staff costs (+36% yoy) arising from higher bonus provisions from improved operating results. Newsprint charge-out is expected to be below US$550/mt in FY10F and the Group has locked in its print requirements till Mar’11.

Ad revenues jumped 28% in tandem with the strong economic growth. Print ad revenues jumped 28% yoy, higher than 13.4% growth we saw in 2Q. In 3Q, display, classifieds and magazines registered growths of 31%, 24% and 26% yoy respectively. YTD, print ad revenues grew 11.8%.

Sky11 TOP; look for higher dividends with cash inflow? Sky11 has received its temporary occupation permit (TOP) in May’10 with S$674m revenue and S$480m profit. The earnings slack as profit recognition ceases is largely expected. We remain optimistic of potentially higher special dividends when the remaining 80% cash proceeds are eventually received (S$539m).

Recommendation

Maintain Buy, TP: S$4.42. We maintain our Buy call for the counter as a proxy to the economy, coupled with a potentially higher than expected final/special dividends. Our sum-of-parts TP remains at S$4.42.

Potential dividend upside in 4Q

At a Glance

• 3Q results expectedly strong; EBIT +36% yoy to S$186.5m

• Print ad revenue showed a stronger growth of 28% yoy to S$204.3m vs 2Q’s growth of 13.4%

• Sky@Eleven received TOP in May’10; earnings slack hereon is expected

• Looking forward to higher-than-expected dividends in 4Q (DBSV estimate 20 Scts); retain Buy and sum-of-parts TP: S$4.42

Comment on Results

Strong 3Q. Revenue grew 27% to S$415m in 3Q, largely contributed by newspaper & magazine operations (+20% yoy), rental revenue (+14%) and final recognition of Sky@Eleven (Sky11) development property (S$101m, +57%).

EBIT grew by a strong 36% to S$186.5m largely arising from lower newsprint charge-out costs (US$529/mt vs US$779/mt in 3Q09), offset partially by higher staff costs (+36% yoy) arising from higher bonus provisions from improved operating results. Newsprint charge-out is expected to be below US$550/mt in FY10F and the Group has locked in its print requirements till Mar’11.

Ad revenues jumped 28% in tandem with the strong economic growth. Print ad revenues jumped 28% yoy, higher than 13.4% growth we saw in 2Q. In 3Q, display, classifieds and magazines registered growths of 31%, 24% and 26% yoy respectively. YTD, print ad revenues grew 11.8%.

Sky11 TOP; look for higher dividends with cash inflow? Sky11 has received its temporary occupation permit (TOP) in May’10 with S$674m revenue and S$480m profit. The earnings slack as profit recognition ceases is largely expected. We remain optimistic of potentially higher special dividends when the remaining 80% cash proceeds are eventually received (S$539m).

Recommendation

Maintain Buy, TP: S$4.42. We maintain our Buy call for the counter as a proxy to the economy, coupled with a potentially higher than expected final/special dividends. Our sum-of-parts TP remains at S$4.42.

SPH profit up a robust 29.9% in Q3

Rise due to rebound in ad sales, higher contribution from property segment

SINGAPORE Press Holdings (SPH) reported a 29.9 per cent increase in its net profit for the third quarter on the back of a strong rebound in advertising sales and higher contribution from its property segment.

Earnings for the three months ended May 31 stood at $165 million, up from $127 million in the same period a year ago, the group said yesterday.

This translated to earnings of 10 cents per share for the quarter, against earnings of eight cents per share a year ago.

Recurring earnings grew 34.7 per cent to $177 million from a year ago, buoyed by better performance in the group’s newspaper and magazine segment.

With a rebound in advertising sales, revenue from the segment rose 19.8 per cent to $266 million.

Print advertisement revenue was up 28.1 per cent to $204 million, thanks to higher sales in advertisement categories such as recruitment.

Circulation sales, however, dipped 3.1 per cent for the quarter to about $53 million.

Revenue from its property segment jumped 43.4 per cent to $135 million, due to higher revenue from Sky@eleven – which secured its temporary occupation permit in May – and the increase in rental income from Paragon.

But the media group also posted a 33 per cent drop in investment income to $11.7 million compared to a year ago. The income mainly comprised dividend and interest income.

Property development costs of $28.1 million were recognised for Sky@eleven, up 54.3 per cent.

Staff costs increased by 36.1 per cent to $96.4 million due to higher variable bonus provision in line with the improved profits from the newspaper business and lower government jobs credit grant received this year.

This was also met by a 14.6 per cent decline in materials, consumables and broadcasting costs to $38.8 million, thanks largely to lower newsprint costs.

As in the previous corresponding quarter, no dividend was declared for the period.

For the nine months, net profit surged 47.4 per cent to $423 million. Recurring profits stood at $464 million, up 31.4 per cent compared to the nine-month period a year ago.

Operating revenue of the newspaper and magazine segment rose 8.3 per cent to $732 million.

Print advertisement revenue rose 11.8 per cent to $552 million, while circulation revenue dipped 2.4 per cent to about $157 million.

Investment income for the nine-month period swung into the black to $25.4 million, compared to an investment loss of $16.2 million a year ago.

‘Our print advertisement revenue and profit from our core newspaper business have rebounded strongly, in tandem with the economic recovery,’ said SPH chief executive Alan Chan.

SPH remains committed to developing its digital and interactive media businesses, he added.

Barring unforeseen circumstances, the directors expect the group’s overall FY2010 performance to be better than that of the previous financial year.

SPH shares gained four cents yesterday, or a shade over one per cent, to close at $3.93.

SINGAPORE – OCBC has raised its target price for Singapore Press Holdings to $4.63 from $4.31 and kept its 'buy' rating, citing stronger than expected third-quarter earnings and positive outlook for the rest of the fiscal year.

'In view of the strong results and positive outlook, we therefore believe that the group is likely to gain further traction within its various business segments,' said OCBC in a report.

But OCBC noted newsprint prices are likely to rise due to cost pressures, hence potentially increasing newsprint charge-out rates. Staff costs are also expected to rise amid higher bonus provisions.

SPH shares have risen about 7 per cent year-to-date to its last closing price of $3.93.

On Monday, SPH said its February-May net profit rose 29.9 per cent from a year ago to $164.6 million (US$119.3 million). — REUTERS

It’s different this time

• Maintain Outperform. We have lowered our FY10-12 earnings estimates by 1-4% after factoring in a slower recovery in ad revenue because of a potential slowdown in Europe. Our sum-of-the-parts target price accordingly dips to S$4.43 from S$4.50. Nevertheless, maintain Outperform as SPH’s future earnings should be bolstered by a recovery in ad revenue, in line with Singapore’s improving economy, which we believe, will be held up by resilient Asian economies. We expect stock catalysts from better-than-expected ad demand and lower-than-expected newsprint costs.

• Earnings risks mitigated by still-moderate newsprint prices. In 2008-09, SPH’s ad revenue was down 17% yoy. We expect a 5% recovery in ad revenue over 2010-11 from a low base a year ago. furthermore, newsprint prices are unlikely to hit the 2008 peak of US$700/MT because of an expected economic slowdown in the US and Europe. Also, SPH should benefit from US$ weakness as it print-ad revenue is booked in S$ but newsprint is paid in US$. Overall, with a lower cost base, we believe the impact of a potential slowdown on SPH’s earnings will be less muted than in previous recessions.

• Defensive, with high dividend yields. For investors looking for defensive names, we recommend SPH for its: 1) near-monopoly of the print-ad industry in Singapore, making it a beneficiary of a domestic economic recovery; 2) print business which is well-positioned to benefit from a raft of events planned for Asia over the next few years; and 3) dividend yields of 6-7%, comparable to average S-REIT yields and higher than the yields of other large caps.