Weaker but yield should sustain

• 1Q was marginally weaker than expected

• Print ad growth was weaker due to economic uncertainty, offset partially by property rental contribution

• Muted growth outlook but full year DPS should remain intact at 24 Scts

• Maintain HOLD, TP: S$4.01

Highlights

1Q13 slower than expected. 1Q13 net profit dropped by 6.6% y-o-y to S$91.1m, on the back of a 3.1% drop in revenue to S$322.1m and higher operating expenses to S$210.5m (+1.8% y-o-y).

Ad revenues dip on uncertain economic outlook… Revenue from Newspaper and Magazine businesses dipped to S$263.5m (-2.3% y-o-y) on weaker advertisement revenue (S$204.8m, -2%) and circulation revenue (S$49m, -2.6%). Rental income, however, increased marginally to S$49m (+2.9%) on the back of higher rentals from Paragon.

…and higher costs. Staff costs inched up 0.8% higher on salary increments, partially offset by lower bonus provisions, while newsprint costs were S$2m lower as charge-out rates fell to US$644/mt from US$691/mt a year ago. Other operating expenses also increased by 15.4% to S$32.9m on increases in promotional activities and online businesses.

Our View

Earnings growth to remain muted. Along with the muted domestic growth outlook, we expect SPH growth to remain lackluster. DBS economist expects GDP to grow by 1.6% and 3.2% for 2012 and 2013, respectively. With this, we expect print revenues to be weighed down by the muted economic outlook and expect 0%/2% ad revenue growth in FY13F/14F. Fortunately, growth should be supported by stable contribution from its property rental income.

Property rental to grow in importance. We continue to see SPH growing rental income as a key buffer for the group’s softening advertising and circulation revenue. Property rental now accounts for 15% and 21.7% of the group’s revenue and PBT in 1Q, respectively, up from 14% and 19.7% a year ago. This should be further increased with the expected completion of Seletar Mall at the end of 2014.

Recommendation

HOLD for 5.8% yield, TP: S$4.01. Our sum-of-parts based TP remains at S$4.01. Notwithstanding a muted outlook, we expect the share price to be supported by a healthy yield of 5.8%, based on our 24 Scts DPS assumption, similar to FY12. Downside risks to our forecast would be a sharp deterioration of economic sentiment, affecting the group’s core advertising revenue.

Weaker but yield should sustain

• 1Q was marginally weaker than expected

• Print ad growth was weaker due to economic uncertainty, offset partially by property rental contribution

• Muted growth outlook but full year DPS should remain intact at 24 Scts

• Maintain HOLD, TP: S$4.01

Highlights

1Q13 slower than expected. 1Q13 net profit dropped by 6.6% y-o-y to S$91.1m, on the back of a 3.1% drop in revenue to S$322.1m and higher operating expenses to S$210.5m (+1.8% y-o-y).

Ad revenues dip on uncertain economic outlook… Revenue from Newspaper and Magazine businesses dipped to S$263.5m (-2.3% y-o-y) on weaker advertisement revenue (S$204.8m, -2%) and circulation revenue (S$49m, -2.6%). Rental income, however, increased marginally to S$49m (+2.9%) on the back of higher rentals from Paragon.

…and higher costs. Staff costs inched up 0.8% higher on salary increments, partially offset by lower bonus provisions, while newsprint costs were S$2m lower as charge-out rates fell to US$644/mt from US$691/mt a year ago. Other operating expenses also increased by 15.4% to S$32.9m on increases in promotional activities and online businesses.

Our View

Earnings growth to remain muted. Along with the muted domestic growth outlook, we expect SPH growth to remain lackluster. DBS economist expects GDP to grow by 1.6% and 3.2% for 2012 and 2013, respectively. With this, we expect print revenues to be weighed down by the muted economic outlook and expect 0%/2% ad revenue growth in FY13F/14F. Fortunately, growth should be supported by stable contribution from its property rental income.

Property rental to grow in importance. We continue to see SPH growing rental income as a key buffer for the group’s softening advertising and circulation revenue. Property rental now accounts for 15% and 21.7% of the group’s revenue and PBT in 1Q, respectively, up from 14% and 19.7% a year ago. This should be further increased with the expected completion of Seletar Mall at the end of 2014.

Recommendation

HOLD for 5.8% yield, TP: S$4.01. Our sum-of-parts based TP remains at S$4.01. Notwithstanding a muted outlook, we expect the share price to be supported by a healthy yield of 5.8%, based on our 24 Scts DPS assumption, similar to FY12. Downside risks to our forecast would be a sharp deterioration of economic sentiment, affecting the group’s core advertising revenue.

Circulation and ad revenues continue weak trend

• 1QFY13 results mostly in line
  
• Falling circulation and ads
  
• Retail malls healthy
  

1QFY13 PATMI of S$91m

Singapore Press Holdings (SPH) reported 1QFY13 PATMI of S$91.1m which was 6.6% lower YoY mostly due to a reduced contribution from the Newspaper and Magazine and the exhibitions business. 1QFY13 PATMI now forms 24.3% of our annual forecast and is broadly in line with expectations. Topline for the quarter came in at S$322.1m which was 3.1% lower again mostly due to a weaker performance from the Newspaper and Magazines and the exhibitions segments. Of note, circulation revenues declined by S$1.3m (down 2.6%) to S$49.0m during the quarter, while rental income for the group increased by S$1.3m (up 2.9%) to S$48.2 due to higher rental rates achieved at the Paragon.

Trend of weak print advertisement performance continues

We saw the trend of weak print advertisement performance continue in 1QFY13 with revenue declining 4.1% mainly due to classified ads falling 10.5%, while display ads also dipped (down 1.1%). On the cost side, however, things looked more positive: staff costs were mostly flat at S$89.0m (up 0.8%) with average headcount rising marginally to 4,258 (up 0.9%) from 4,221. Material, production and distribution costs fell by S$2.3m (down 4.1%), driven mostly by lower newsprint costs which was $2.0m lower (down 7.6%).

Maintain HOLD

We believe that the persistent trend of falling circulation and advertisement revenues point to increasing uncertainties in SPH’s core newspapers and magazines business, and would put pressure on SPH’s overall operating margins over the mid to long term. However, this is buttressed by its growing retail mall business, which continues to perform well. Moreover, an attractive dividend yield at 5.8% at this juncture likely points to limited price downside from here. Maintain HOLD with an unchanged fair value estimate of S$4.05. We would turn buyer around S$3.90 levels.

Circulation and ad revenues continue weak trend

• 1QFY13 results mostly in line
  
• Falling circulation and ads
  
• Retail malls healthy
  

1QFY13 PATMI of S$91m

Singapore Press Holdings (SPH) reported 1QFY13 PATMI of S$91.1m which was 6.6% lower YoY mostly due to a reduced contribution from the Newspaper and Magazine and the exhibitions business. 1QFY13 PATMI now forms 24.3% of our annual forecast and is broadly in line with expectations. Topline for the quarter came in at S$322.1m which was 3.1% lower again mostly due to a weaker performance from the Newspaper and Magazines and the exhibitions segments. Of note, circulation revenues declined by S$1.3m (down 2.6%) to S$49.0m during the quarter, while rental income for the group increased by S$1.3m (up 2.9%) to S$48.2 due to higher rental rates achieved at the Paragon.

Trend of weak print advertisement performance continues

We saw the trend of weak print advertisement performance continue in 1QFY13 with revenue declining 4.1% mainly due to classified ads falling 10.5%, while display ads also dipped (down 1.1%). On the cost side, however, things looked more positive: staff costs were mostly flat at S$89.0m (up 0.8%) with average headcount rising marginally to 4,258 (up 0.9%) from 4,221. Material, production and distribution costs fell by S$2.3m (down 4.1%), driven mostly by lower newsprint costs which was $2.0m lower (down 7.6%).

Maintain HOLD

We believe that the persistent trend of falling circulation and advertisement revenues point to increasing uncertainties in SPH’s core newspapers and magazines business, and would put pressure on SPH’s overall operating margins over the mid to long term. However, this is buttressed by its growing retail mall business, which continues to perform well. Moreover, an attractive dividend yield at 5.8% at this juncture likely points to limited price downside from here. Maintain HOLD with an unchanged fair value estimate of S$4.05. We would turn buyer around S$3.90 levels.

Challenging times

SPH’s results came in slightly below our expectations, with 1QFY13 recurring earnings down 9.8% YoY to S$109m (+26.7% QoQ) due to lower than expected revenue from the N&M advertisement and other businesses segments. Other operating expenses had crept up by 15.4% to S$33m during the period but remain within our forecasts. On the back of a challenging domestic outlook ahead, we lower our FY13 PATMI by 7% on lower advertisement and other business revenue. Though earnings expectations have been moderated, we believe SPH’s cash flow remains strong enough to sustain a dividend payout of 24S¢ per annum, implying a yield of 5.8%. We believe its FY13 dividend yield of 5.8% remains attractive and will limit share price downside. Maintain NEUTRAL with lower SOTP TP of S$3.80 (from S$3.95 previously).

Challenging outlook for non-rental businesses. 1QFY13 N&M advertisement revenue had declined 2% YoY to S$205m. With the government’s expectation of a moderate GDP growth forecast of between 1-3% ahead, we lower our FY13 N&M advertisement revenue forecast by 2.7%. SPH’s other business segment revenue fell 34.3% YoY during the period to S$10.4m. This was mainly due to the timings of the exhibitions business of which certain shows were brought forward to 4QFY12. We have consequently lowered our FY13 revenue by 18% for this segment. On a brighter note, rental income remained strong, growing 3% YoY to S$48.2m on the back of higher rental rates from Paragon.

Lower newsprint costs partially cushioned increase in other operating expenses. Newsprint charge out rates were down 7% YoY to US$644/MT (-2% QoQ) in 1QFY13. This helped to partially offset against higher other operating expenses which grew 15% YoY to S$33m mainly due to increased business activities for the online businesses, which we expect to be a growing segment going forward.

Maintain NEUTRAL, dividend yield to support share price. We value the core media segment based on 11x FY13 P/E, Paragon (S$2.5b) with assumption of a 5% revaluation gain, Clementi Mall (S$266m) with assumption of average passing rent of S$15/sqft, cap rate of 5.5%, M1 and Starhub at DMG TP and investments as at Nov 12.