Ads picking up as expected

At a Glance

• 2Q results within expectations; operating profit +34% yoy to S$132.7m

• Print ad revenue on recovery track, positive yoy growth of 13.4% yoy led by newspaper display ads (+20%)

• Unchanged interim dividend of 7 Scents declared

• Key beneficiary of Singapore’s revised GDP. Maintain

Buy; TP: S$4.32; yield of 6.9%

Comment on Results

No surprises for 2Q. 2Q revenue of S$318.7 (+11% yoy) was contributed by newspaper & magazine operations (+8.8% yoy), higher rental revenue (+7.9%) and higher percentage of completion from development property revenues (+26%).

Operating profit grew by a larger 34% to S$132.7m largely arising from lower newsprint charge-out costs (US$521/mt vs US$827/mt in 2Q09) and other operating expenses, offset partially by higher staff costs (+20% yoy). As a result, 2Q net profit ended at S$113.3m (+30%) offset partially by higher taxes.

Display ads post 20% growth. Total print ad revenues posted a positive growth of 13.4% yoy as the economy picks up, with newspaper display ads being the main driver (+20% yoy) while classifieds posted a smaller 6% growth. We continue to expect ad revenue to pick up pace sequentially during the year.

7 cents dividend declared. We expected an 8-cent dividend in line with a partial restoration of staff pay cuts, but were disappointed. We believe management is being cautious and continue to expect 27cents dividend for full year.

Recommendation

Maintain Buy, TP unchanged at S$4.32. We maintain our Buy recommendation, as we believe current share price has yet to fully reflect ad recovery, which should be driven by more activities coming up in 2H as well as a stronger GDP forecast which was just revised up to 7%-9% (2010) by the Singapore Government on a strong 1Q growth. This is also coupled with an attractive yield of 6.9%, is an attractive investment thesis in our view.

SPH profit for Q2 up 30.2% at $113.3m

H1 earnings soar 61.2% to $258m on operating revenue of $672.7m

SINGAPORE Press Holdings has posted a 30.2 per cent increase in second-quarter net profit, as print ad revenue rebounded and property performed strongly.

Net profit for the three months ended Feb 28, 2010, came to $113.3 million – up from $87 million a year back – as operating revenue rose 11 per cent to $318.7 million.

Recurring profit jumped 35.8 per cent to $127.5 million, as revenue from core newspaper and magazine operations grew 8.8 per cent year on year to $222.6 million. A rebound in display and recruitment ad revenue offset a dip in circulation revenue.

Higher revenue from Sky@eleven and higher rental income from Paragon lifted revenue from property operations 18 per cent year on year to $85.2 million.

Net investment income totalled $3.5 million – a turnaround from a $0.1 million loss for Q2 2009.

Q2’s showing meant that first-half net profit surged 61.2 per cent to $258 million and operating revenue climbed 7.2 per cent to $672.7 million.

Chief executive Alan Chan said: ‘The positive trend in our print advertising sales has continued into Q2, and has enabled us to deliver a strong set of first-half results.’

SPH has declared an interim cash dividend of seven cents a share, to be paid on May 21.

Its shares slid a cent to close at $3.93 yesterday.

The group’s net asset value per share was $1.29 as at Feb 28, 2010, up from $1.28 as at Aug 31, 2009. Earnings per share rose two cents to seven cents for Q2 2010, from five cents for Q209.

Operating expenses eased 1.1 per cent year on year to $193.5 million. Lower newsprint costs, factory costs and other overheads offset higher property development and staff costs.

SPH expects a gradual increase in newsprint prices in the coming months, due to cost pressures and tighter market conditions.

Mr Chan said that the group would ‘continue to monitor cost levels closely while at the same time devote resources to optimise and grow its core businesses and invest selectively in adjacent businesses’.

SPH invests $45m to upgrade printing assets

Project will raise company’s productivity and better meet advertisers’ demands

SINGAPORE Press Holdings (SPH) is investing $45 million to rejuvenate its printing assets, a move which will raise the company’s productivity significantly and better meet advertisers’ demands.

SPH chairman Tony Tan, who launched the upgrading and renewal project at the company’s Print Centre in Jurong yesterday, said the project is a reaffirmation that print is still a core business of the media group.

SPH, which owns a stable of newspapers and magazines including The Business Times, has in recent years ventured into new media with online news, search and interactive portals. ‘But while we continue to venture into other arenas, our core business is in print and our newspapers and magazines still bring in the bulk of our revenue and profits,’ said Dr Tan.

The $45 million investment in the two-and-a-half-year project, which started in April last year, is in new press control systems, improved colour capacity for existing computerised printing presses, and digitised computer-to-plate systems to replace old film-based ones. All new systems are expected to be fully operational by the second half of next year.

Anthony Cheng, executive vice-president of production, said that vendors and partners for this project were chosen after a ‘rigorous and thorough evaluation process’.

ABB Industry and Harland Simon won the contracts to replace press control systems for the GOSS Colorliner presses at the Print Centre, which were installed in 1996.

These presses usually have a life span of 30 years but swift computer advancements have meant that the control systems need replacing or risk becoming technologically obsolete. SPH expects this replacement to keep the presses running for another 15 years.

Upgrading of the Colorliner presses’ colour capacity will be handled by the original manufacturer, GOSS International. With the upgrade, the presses will be able to handle 40 back-to-back coloured broadsheet pages, up from the current 24, in a single run. This will allow newspapers printed on these presses, such as Lianhe Zaobao, The New Paper and The Business Times, to better meet advertising demands, SPH said.

Agfa Graphics will undertake the third major upgrade, which will do away with film-based plate making, replacing this with a digitised computer-to-plate one instead.

SPH said with the success of the digitised system that was introduced in the UNISET press in the Media Centre as a pilot project, it expects the full roll-out at the Print Centre to yield greater automation and higher productivity.

No surprises; interim dividend as expected

• Maintain Outperform; in line. 2Q10 net profit was S$113.3m (+30.2% yoy), accounting for 22% of our full-year estimate. 1H10 net profit grew 61.2% yoy to S$258.0m on revenue growth of 7.2% yoy to S$672.7m. 1H10 results came in 2% below our forecasts and were in line with consensus. SPH declared an interim dividend of 7 cts/share, in line with our forecast. Our earnings estimates remain intact with our sum-of-the-parts target price unchanged at S$4.50. We maintain Outperform on the back of an improving outlook.

• 2Q10 operating revenue grew 11% yoy to S$318.7.0m. Within our expectations, print revenue rose 13.3% yoy to S$165.4m. Display and recruitment ad revenue rebounded, while circulation revenue was down by S$1.6m. Property revenue rose 18.0% yoy to S$85.2m, boosted by Sky@eleven revenue and increase in rental income from Paragon. Materials, consumables and broadcasting costs were lower 28.1% yoy due to the 38.4% drop in newsprint costs. As expected, staff costs went up 20.1% due to higher bonus provision.

• Ad demand continues to improve. The Saturday edition of The Straits Times averaged 254 pages in March, up 28% yoy and up 12% mom. Ad demand is coming mainly from property developers, telecommunications and FMCGs. We believe the uptrend is sustainable, driven by a robust property market and an improving job market.

• Outlook. SPH continues to expect newsprint prices to rise in line with the economic recovery though we are not overly concerned as prices have been locked in till Dec 10 and remain way below peak prices. Sky@eleven is on track to obtain its temporary occupation permit in the coming months while Paragon’s occupancy continues to be high. Clementi Mall is targeted to start operations in 1H11.

Newspaper ad demand picked up further in March

• According to the CS Page Monitor, newspaper ad demand picked up further in March.

• Estimated total classified volumes jumped 18% YoY in March – a big improvement from the estimated 7% decline in 2Q classified volumes. The strong showing is again attributable to a 71% YoY surge in job ad volumes (estimated at 71% in March). The strong job ad demand is in line with the healthy pick-up in the Singapore economy.

• Further, there is a sharp turnaround in non-job classified ad volumes – from an estimated -17% YoY for 2Q10E to +1% in March. In addition, our page count indicates that display ad volumes improved 14% YoY in March, versus +6% estimated for 2Q0E.

• SPH is scheduled to release its 2Q10 results on 13 April. We expect further consensus EPS upgrades after the results – our FY10 earnings forecast is 7% above street expectation.

• Our target price of S$4.67 represents 22% potential upside from here. We maintain our OUTPERFORM rating.