RafflesMed – OCBC
DOWNGRADE TO HOLD; TONING DOWN ASSUMPTIONS
- Uncertainty over new Specialist Centre
- Paring FY13F EPS estimate by 5%
- No near-term impact from HK land tender
Delay over new Specialist Centre could shroud earnings visibility
Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flowthrough effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.
Awaiting results of private hospital land tender bid in HK
RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.
Downgrade to HOLD on revised estimates and valuation grounds
RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.
RafflesMed – OCBC
DOWNGRADE TO HOLD; TONING DOWN ASSUMPTIONS
- Uncertainty over new Specialist Centre
- Paring FY13F EPS estimate by 5%
- No near-term impact from HK land tender
Delay over new Specialist Centre could shroud earnings visibility
Raffles Medical Group (RMG) is seeking to expand its capacity with a new Specialist Centre at 30 Bideford Road (~42,668 sf). However, we believe that there is still uncertainty over the possible commencement date of operations as the authorities had rejected its first application in Oct last year. We adopt a more conservative approach, and assume that the delay in operations would stretch until late 2013 or early 2014 (previously 1H13). We believe that there could also be a negative flowthrough effect to its Raffles Hospital as this new Specialist Centre was intended to act as an additional platform for referrals for follow-up diagnostic and treatment services. We thus trim our FY13F revenue and EPS estimates by 2.7% and 5.0%, respectively.
Awaiting results of private hospital land tender bid in HK
RMG is currently awaiting the results of its Hong Kong land tender bid for a private hospital development (submitted on 27 Jul 2012), with results expected to be announced in early 2013. Regardless of the outcome of the tender results, we opine that there would be no material near-term financial impact on RMG, given that this is a greenfield project and capex would take place in stages. We expect this project to be financed by RMG’s strong operating cashflow generation and debt.
Downgrade to HOLD on revised estimates and valuation grounds
RMG’s share price has performed commendably since we upgraded the stock to a ‘Buy’ on 10 Oct 2012 (please refer to our report titled “Time to Revisit This Stock”), jumping 18.2% against the STI’s 4.7% gain over the same period. We now downgrade RMG to HOLD, as we lower our fair value estimate from S$2.82 to S$2.68 as a result of our reduced projections, still pegged to 24x FY13F EPS.
SPH – DBSV
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.
SPH – DBSV
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.
SPH – OCBC
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.