SPH completes takeover of financial portal

SINGAPORE Press Holdings (SPH) has completed the acquisition of financial portal Shareinvestor.com to broaden its online media play.

SPH, which publishes The Business Times among other publications, will pay up to $18 million for Shareinvestor.com.

An amount of $12 million is payable to the portal’s owners upon completion of the transaction. The remainder will be paid in two equal instalments in 2009 and 2010 if Shareinvestor.com meets its financial targets.

Local magazine publisher Lexicon Group owned 27.7 per cent of Shareinvestor.com. The other owners were individuals, including company founder and chairman Michael Leong, CEO Christopher Lee and IT director Lim Dau Hee.

‘SPH will retain the entire management and staff of Shareinvestor.com,’ SPH said yesterday, adding that the portal would continue to operate independently. Mr Leong has been appointed a consultant and director to the company. Mr Lee and Mr Lim will retain their current positions.

The purchase, made through SPH’s wholly owned unit, SPH Interactive, will give the publishing giant a ready foothold in the growing market for online financial tools and applications. Shareinvestor.com has more than 350 institutional and retail investor clients.

‘The acquisition will enable SPH to provide online financial services as part of its growing portfolio of Internet services, with substantial synergies to be derived with various SPH online entities, in particular The Business Times and its website businesstimes.com,’ SPH said.

In addition, the buyout also will strengthen SPH’s portfolio of other Internet offerings. This is because Shareinvestor.com has an established investor relations network in Asia and also offers other value-added services such as corporate website design and technology solutions.

Pressing on in uncertain times

Story: SPH’s FY08 net profit ended at S$437m, down 12% from FY07, largely due to a 67% drop in investment income, but mitigated slightly by a strong operating profit, which grew 16% – due to its newspaper/magazines and property divisions. Revenue was up by 12.1% to S$1.3bn on higher contributions from all business segments. Excluding an impairment charge of S$26.5m on investment in an associate company, SPH’s FY08 earnings would have been in line with our expectations.

Point: With the recent global economic events, while we expect its newspaper operations to be affected by slower print ad revenues and higher newsprint costs, this should be offset by the progressive recognition of its development property project – Sky@Eleven. We have assumed US$850/mt for newsprint costs in our model. Upside could come from lower newsprint costs as a result of lower global commodity prices. DBS economists revised Singapore’s ’09 GDP growth forecast down to 2.6% from 4.6%.

In line with this, we have also revised our AdEx growth assumption down to –2%, from a flat growth previously. As such, we trimmed our net profit down by 1.7% – 1.9% for FY09F – 10F. Our sensitivity analysis shows that at the last traded price of S$3.50, it is pricing in a c.18% drop in AdEx, assuming other factors constant.

Relevance: Buy, TP: S$4.25. Maintain Buy, TP adjusted down to S$4.25 based on sum-of-parts due to lower newspaper earnings and pegging a lower valuation for Paragon. While the economic outlook seems challenging with Singapore slipping into technical recession and the recent plunge in equities, we believe SPH should be relatively resilient given its defensive newspaper operations, diversified businesses and strong balance sheet.

Risks include sharper than expected drop in print ad revenues, continued surge in newsprint costs, and higher USD/SGD exchange rate.

Declared a dividend of 19 cents (9 cents final; 10 cents special). Coupled with interim dividend of 8 cents, total dividend for the year is 27 cents, amounting to 86% of recurring profit.

Slowing core business in 2009

Slowing growth. Singapore Press Holdings (SPH) reported its 4Q08 results last Friday with flat operating revenue of S$351.6m while net profit dove 26.3% YoY to S$92.5m. The bad bottomline performance was primarily due to a non-cash impairment write-down of S$26.7m for SPH’s 35% owned associate, TOM Outdoor Media Group (TOM). On a full year basis, SPH delivered 12.3% YoY topline growth to S$1.316b but PATMI still fell 12.4% YoY to S$437.4m. The topline was helped by a stronger recognition of the Sky@Eleven project while the poorer bottomline was due to less investment income and the impairment charge.

Less adverts expected with a technical recession. MAS stated that “Looking ahead, the outlook for the global economy has deteriorated amidst heightened risk aversion and de-leveraging in the financial sector”. The official forecast of GDP growth projection was down to 3.00% (prev. 4-5%), adding that “the growth of the Singapore economy is expected to remain below potential in the period ahead”. Management has indicated that advert requests have been slowing in view of the macro environment.

Rise in print costs in next 3 quarters. Management has again highlighted rising newsprint costs. As such, we raise our newsprint costs by between 18-35% (ref recent quarter’s price) for the next 3 quarters in view of supply curtailment (lines shutting down) and escalating production costs on the back of high paper demand, partly due to the US elections. We will re-jig our costs estimates if we see a strong and sustained correction in prices. Cash preservation. While SPH has stepped up its dividend/share to S$0.27 for FY08, management has iterated that it does not have a dividend policy. We discount Sky@Eleven’s stronger revenue recognition as it is non-cash in nature in view of its deferred payment scheme. With the gloomy outlook, we have assumed that SPH will cut its dividend/share to S$0.24 in an effort to preserve capital. Despite the lowered assumption, yield continues at 6.9% in view of the massive correction in share price.

Maintain BUY. While the STI has deteriorated 31.9% YTD, SPH has demonstrated its resilience with a smaller fall of 11.6% YTD. We tweaked our FY09 estimates slightly as we gain more clarity on segmental revenue prospects (stronger non-cash revenue recognition of Sky@Eleven but slower Adex) as well as cost projections. Our SOTP is now S$5.14 (prev S$5.25). Maintain BUY.

Print-ad growth to slow further

Event

SPH to sell stake in Hong Kong publisher

SINGAPORE Press Holdings said yesterday it will sell most of its stake in a Hong Kong publisher. Through its wholly owned indirect subsidiary Magazines Incorporated, SPH will sell 80 per cent of its stake in MI Publishing (MIHK) to Sing Tao Holdings (BVI). Magazines Inc is a wholly owned subsidiary of SPH Magazines.

SPH did not say how much it will be paid for the stake. ‘The consideration will be 80 per cent of the net asset value of the entire share capital and will be determined in the completion accounts to be finalised on or around Nov 15,’ it said.

The shares will be transferred to Sing Tao Holdings, which owns media company Sing Tao News Corp, when conditions under a sale-and-purchase agreement are fulfilled, SPH said. MIHK will no longer be a subsidiary of SPH but will remain an associate. After completion of the transaction, MIHK will continue to publish The Peak Hong Kong under a publishing licence arrangement with SPH Magazines, SPH said.

The divestment is not expected to have a material impact on SPH’s earnings or net tangible assets per share for the financial year ending Aug 31, 2009.

As it hives off its stake, SPH is getting into the book publishing business in Singapore. It said last month it will set up a book publishing business under its subsidiary Straits Times Press. It has taken over the contracts and intellectual property rights of SNP International Publishing, the book publishing arm of SNP Corp.