Paragon in $82m facelift, expansion

SPH investment to yield contemporary facade, more retail, commercial space

THERE will be a new look for Paragon shopping centre come October. The Orchard Road mall will get a $45 million makeover – to update its building facade and increase retail space.

The facelift will begin this month, and is expected to be completed in October.

In addition, the commercial space above its retail podium will be expanded – at a cost of $37 million, including the payment of land premium. This is scheduled to be completed by end-2008.

The total cost of the facade makeover and the addition of commercial space is $82 million.

Singapore Press Holdings, which owns and manages the prime retail and office complex, says that the makeover is part of Paragon’s continuous efforts to enhance its retail environment and shopping experience for customers.

And shoppers need not fret: Paragon will remain open and operate as it normally does during the renovation period.

The shopping centre’s current glass and granite facade cladding will make way for a ‘contemporary yet elegant’ look with the installation of pop-out glass boxes.

They will be made of multi-faceted layers of aluminium panels and fritted glass with in-built energy-saving LED lights.

The new three-dimensional facade will comprise multiple transparent, glazed and volumetric external shop-fronts installed above the walkway level.

Five duplexes of designer stores facing Orchard Road will front the mall and each will see its shop front increase by three times the current height. ‘At the busy intersection of Orchard Road and Bideford Road, a luxury brand’s flagship store will enjoy a looming five storeys of shopfront starting from ground floor, providing a dramatic visual interest at this significant landmark junction,’ said SPH.

Paragon’s renovation and higher concentration of sophisticated designer stores are in line with the transformation of Orchard Road into a shopper’s paradise for the increasing number of well-heeled international visitors coming to Singapore.

‘The design is also prompted by luxury brand retailers looking for more space to expand and build their signature flagship stores and an opportunity to do something different,’ said Linda Kwan, general manager of Paragon.

‘Paragon’s facade, when expanded forward by four metres towards the Orchard Road pedestrian walkway and spanning 115 metres in total length, will provide these tenants with significant visibility and brand expression.’

The facade project is undertaken by DP Architects, which also oversaw the integration of Paragon and the former Promenade into a single shopping mall in 2003.

There will be minor upgrading works within Paragon, including the addition of new balustrades for a contemporary look.

Upon completion of the enhancement works, the nett lettable area at the retail podium will increase by about 11,600 square feet.

The commercial space above the Paragon retail podium will be expanded by another 29,000 square feet – with the construction of two more floors for medical and office use.

Great tidings of Christmas indulgence

Bumper page-count suggests strong advertising revenue growth. Last Saturday issue of The Straits Times totalled 304 pages. Compared to the corresponding Saturday of Dec 06 (totalling 270 pages), this suggests a bumper advertising revenue (AR) growth of 12% yoy, driven by a strong display advertising growth of 11% yoy. We understand from SPH, advertisers have stepped up their festive season’s advertising expenditure well ahead of Christmas in anticipation of a much stronger consumer spending this year compared to last year. With a robust domestic economy, full employment, large year-end bonuses, a buoyant consumer confidence and higher tourist arrivals, retailers are looking forward to strong sales in the upcoming festive season.

Sustained strong AR growth into FY08. Our page-counts of The Straits Times, the bellwether of Singapore’s advertising expenditure, for Oct 07 and Nov 07 are indicating robust AR growth of 6% and 7% respectively. Separately, ACNielsen data is suggesting a healthy AR growth of 5% in Oct 07. SPH’s AR moved out of the doldrums in 2HFY07. The company’s overall AR growth improved from 2.1% in 1QFY07 to 3.9%, 10.2% and 10.7% in 2QFY07, 3QFY07 and 4QFY07, respectively. Display AR growth improved from a contraction of 1.3% in 1QFY07 to 4.3%, 11.7% and 9.4% for 2QFY07, 3QFY07 and 4QFY07 respectively while classified AR growth fluctuated from 7.9% to 3.2%, 9.1% and 13.9% respectively. Our page-counts of The Straits Times suggest that the strong AR growth in 2HFY07 has filtered into 1HFY08.

SPH’s AR growth is now in sync with Singapore’s GDP growth, as domestic consumer spending has finally picked up whereas previously, growth was driven by the external sector. SPH’s AR growth has benefitted from more advertising by retailers and an active domestic property sector. The heavy primary residential property launches over the last 2-3 years is now leading to a rise in residential property sub-sales, which is contributing to more classified ads.

SPH is a good defensive stock in times of uncertainty. SPH’s core fundamentals are now supported by a healthy AR growth, Paragon Shopping Mall’s rising rentals on the back of rising rentals in prime shopping locations in Singapore, full-year earnings contributions from Sky@eleven and a high annual net dividend yield of 6-7% p.a. Maintain BUY and our target price of S$5.40 (based on our sum-of-the-parts valuation of S$5.40/share).

Sky@eleven will boost SPH earnings: Tony Tan

Analysts estimate project to yield up to $450m profit

SINGAPORE Press Holdings is expecting a significant boost to its profits for this financial year and the next – from its Sky@eleven condominium project. In his speech at the media group’s annual general meeting yesterday, SPH chairman Tony Tan said: ‘On the property front, our launch of Sky@eleven, a luxury condominium project at Thomson Road, was greeted with overwhelming response. All 273 units were sold out within hours of the soft launch in January 2007.

‘ SPH will enjoy a significant boost to its profits in the next two financial years from contributions from Sky@eleven.’

‘The last financial year has been a good year for SPH,’ said Dr Tan. ‘With group operating revenue of $1.16 billion, net profit attributable to shareholders crossed the half-billion mark to hit $506.2 million.’

The group’s $506.2 million net profit was 18.1 per cent higher than the previous year’s $428.5 million, which included an exceptional gain of $66.8 million.

The FY2007 results included a maiden profit recognition of $47.8 million from Sky@eleven. Profits from Sky@eleven are being recognised on a percentage-of-completion basis and temporary occupation permit (TOP) is expected in early 2010.

Analysts had estimated total profits from the project at $350 million to $450 million.

At yesterday’s AGM, some shareholders were concerned about the group’s core print business, citing trends of declining newspaper readership in other developed countries.

Another shareholder asked about generating more revenue from online media. Responding, Dr Tan said that the group is continuing to invest in other media platforms.

‘$100 million has been earmarked to invest in the Internet (business). So when the trends overseas come to Singapore, SPH will be prepared and be in a good position to exploit the online space.’

Like any new business venture, building revenue from online services will take time, he said.

Dr Tan also said that SPH is making further inroads into the online search business. Online search and directory services for the China and Singapore market are expected to be rolled out next year, as well as regional online classifieds, he said.

Both are part of the joint venture formed last year with Norwegian media group Schibsted ASA. ‘Online directory portals will be the future for SPH,’ Dr Tan said.

The traditional core newspaper and magazine business continued to make up the bulk of profits for the group, and investing in its current stable of papers continues.

Singapore’s first Chinese freesheet my paper will be revamped into a full-fledged bilingual newspaper early next year. It will have equal emphasis on the Chinese and English languages and will be expanded into a 48-page paper from its current 24-page format.

‘Circulation of our other newspapers, such as The Business Times, Berita Harian and Tamil Murasu, also registered creditable increases on the back of strong support from readers and advertisers,’ said Dr Tan.

SPH announced yesterday that directors Cheong Choong Kong and Lee Ek Tieng would step down. Dr Cheong was appointed a director of SPH in 1997. Mr Lee joined SPH as a director in 2001.

Yield’s The Only Attraction

Core publishing continues to show improvement

• FY07 results in line with our expectations: FY07 net profit rose 18.1% Y/Y due to strong revenue growth of 13.7% Y/Y, helped by maiden profit of S$47.8 million from the sale of Sky@eleven condominium and strong investment income gain, which was up 79% Y/Y to S$146.2 million (sale of investments and profits from capital reduction exercises by Starhub and M1). FY07 EPS of S$0.32 was roughly in line with our estimate of S$0.31 and above
consensus of S$0.29 by 9.1%.

• Newspaper ad revenue continues to post strong growth figures: SPH saw strong revenue and earnings growth for its core newspaper and magazine division: revenue grew 5.9% Y/Y and PBT grew 8.2% Y/Y. Display and classified ad revenue continues to post strong growth in the 4Q, up 8.4% and 13.8% respectively. Overall, display and classified ad revenue grew by 5.6% and 8.5%, respectively, in FY07.

• Positive catalysts for SPH in the next few quarters: We expect positive catalysts from: (1) stronger-than-expected ad revenue growth in the coming quarters; (2) maiden earnings recognition from its property development project—Sky@eleven; and (3) higher revaluation and rental revisions at Paragon.

• Valuation and risks: We maintain our Overweight rating on SPH with our June-08 price target of S$5.50, based on sum-of-the-parts valuation. The key risks to our price target are: (1) ad revenue growth; (2) increase in global newsprint prices; (3) rising cost of wages and operating costs for the company.