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.
SPH – DMG
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.
SPH – Kim Eng
Buy For Still Attractive Yield
Results slightly below expectation. SPH announced its 1QFY8/13 results, which were slightly below market expectations. Top line declined slightly by 2.6% yoy to SGD326.4m. Property sector registered 2.9% yoy growth in revenue, which is offset by 2.3% decline by Newspaper and Magazine. Core earnings also declined by 9.8% yoy. However we maintain BUY rating due to still attractive and stable dividends yield, with target price of SGD4.50 based on SOTP valuation.
Core ad business likely to stabilize going forward. SPH’s core print advertisement revenue dropped by 2.3% yoy in 1QFY8/13 due to weak economy condition. However the advertising demand for property, fashion and automobile sector remains strong. We believe that ad revenue is likely to stabilize in FY13 if Singapore economy manages to recover from trough.
Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 1QFY8/13, rental income rose by SGD1.3m (+2.9%) to SGD48.2m. This was driven by higher rental rate in Paragon. Given the robust demand in Orchard area we believe there is still upside from property rental income for FY13.
Operating margin sustained at above 30%. Cost was well-managed in 1QFY8/13, only marginally increased by 1.5% yoy, thanks to low newsprint cost and low interest rate. Operating profit margin remained above 30% level and we believe that 30% OP margin is sustainable going forward.
Yield still attractive. We expect 25cents dividends for FY13 implying 6.1% dividends yield at current price of SGD4.11, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is still above historical average of 352bps. We recommend investors to keep invested in SPH, enjoy 6.1% yield while waiting for more potential exciting news such as property assets spin-off.
TELCOs – Kim Eng
Focus On Dividends Still
Underweight. We are underweight on the telco sector mainly because of our Sell call on SingTel, which is being challenged on many fronts, both domestic and overseas. It is into its fourth year of declining earnings and if this continues, radical action may be called for at the management level. This year, all the telcos will be focusing on how to monetise data use, but we expect the benefit flow to be gradual. Subscriber churn in Pay TV is also likely to rise, mainly from StarHub, as SingTel beefs up content but we think this will be temporary. Earnings growth for the sector will be plodding at best. As such, we see the telco sector as still a sector to tap for dividends, and StarHub offers the best bet for sustainable dividends, especially if raises its 2013 annual DPS on record low net debt/EBITDA.
LTE/4G to see faster adoption than 3G. It took three years for 3G mobile subscriptions to exceed 2G as (1) 3G handsets were very limited in the early days, (2) were significantly more expensive than 2G handsets and (3) there was also very limited content positioned specifically for mobile screens, which are not suitable for desk top oriented content. There are now more 4G handsets available and it is very likely that users upgrading to new handsets will want them to be 4G capable. In addition, content customised for mobile handsets’ smaller screens is much more common now. As such, we would expect to see LTE adoption to be faster than 3G.
However, challenge is still in monetisation. Data monetisation will be the top priority in 2013. Despite surging data usage in the last few years on the back of the popularity of the iPhone and as more online content was made modified for small screens, past attempts to monetise this trend had been foiled by the universal availability of unlimited data plans. Now that the telcos have imposed much lower caps (from 12GB to 2GB) since 2H last year, the telcos now have a fighting chance to boost contributions from data. This will be aided by a greater diversity of LTE handsets, network coverage and price plans. However, given that less than 15% of mobile users exceeded 2GB monthly to begin with, the boost is likely to be gradual in 2013.
SingTel to be more aggressive in Pay TV. Last year, SingTel added 40 Fox International channels including popular channels such as National Geographic, StarWorld and Fox Movies. It also renewed the next three seasons of the Barclay’s Premier League ahead of StarHub on a non-exclusive basis. This year, we expect SingTel to be aggressive again in adding content as it continues to build up its channel line-up to match StarHub. StarHub still holds an edge in the depth of its content offerings especially in niche demographics but SingTel has a superior sports lineup.
Spectrum auction sooner rather than later. IDA, Singapore’s telco regulator, is expected to hold an auction in 2013 to refarm existing 1800 MHz, 2.3GHz and 2.5GHz spectrum bands from their current 3G use to 4G. The auction is designed to ensure service continuity beyond 2015 and 2017 when existing rights expire. As IDA is typically prudent in its long-range planning, we would not be surprised if the auction is held before mid-2013. The outcome is likely to be benign as sufficient spectrum is available and rationality should prevail amongst the telcos. While no reserve price has been set yet, we do not expect it to be significantly higher than the last round in 2010.
Underweight. We are underweight on the telco sector mainly because of our Sell call on SingTel, which is being challenged on many fronts, both domestic and overseas. In Singapore, margin downside is the biggest challenge as SingTel continues to compete on content even as it restructures away from a pure telco toward a multimedia strategy. In Australia, competitive pressures could start to simmer again given recent new capital received by smallest telco VHA, while India continues to be a nightmare of regulatory risks. SingTel is into its fourth year of declining earnings and if this continues, radical action may be called for at the management level.
TELCOs – Kim Eng
Focus On Dividends Still
Underweight. We are underweight on the telco sector mainly because of our Sell call on SingTel, which is being challenged on many fronts, both domestic and overseas. It is into its fourth year of declining earnings and if this continues, radical action may be called for at the management level. This year, all the telcos will be focusing on how to monetise data use, but we expect the benefit flow to be gradual. Subscriber churn in Pay TV is also likely to rise, mainly from StarHub, as SingTel beefs up content but we think this will be temporary. Earnings growth for the sector will be plodding at best. As such, we see the telco sector as still a sector to tap for dividends, and StarHub offers the best bet for sustainable dividends, especially if raises its 2013 annual DPS on record low net debt/EBITDA.
LTE/4G to see faster adoption than 3G. It took three years for 3G mobile subscriptions to exceed 2G as (1) 3G handsets were very limited in the early days, (2) were significantly more expensive than 2G handsets and (3) there was also very limited content positioned specifically for mobile screens, which are not suitable for desk top oriented content. There are now more 4G handsets available and it is very likely that users upgrading to new handsets will want them to be 4G capable. In addition, content customised for mobile handsets’ smaller screens is much more common now. As such, we would expect to see LTE adoption to be faster than 3G.
However, challenge is still in monetisation. Data monetisation will be the top priority in 2013. Despite surging data usage in the last few years on the back of the popularity of the iPhone and as more online content was made modified for small screens, past attempts to monetise this trend had been foiled by the universal availability of unlimited data plans. Now that the telcos have imposed much lower caps (from 12GB to 2GB) since 2H last year, the telcos now have a fighting chance to boost contributions from data. This will be aided by a greater diversity of LTE handsets, network coverage and price plans. However, given that less than 15% of mobile users exceeded 2GB monthly to begin with, the boost is likely to be gradual in 2013.
SingTel to be more aggressive in Pay TV. Last year, SingTel added 40 Fox International channels including popular channels such as National Geographic, StarWorld and Fox Movies. It also renewed the next three seasons of the Barclay’s Premier League ahead of StarHub on a non-exclusive basis. This year, we expect SingTel to be aggressive again in adding content as it continues to build up its channel line-up to match StarHub. StarHub still holds an edge in the depth of its content offerings especially in niche demographics but SingTel has a superior sports lineup.
Spectrum auction sooner rather than later. IDA, Singapore’s telco regulator, is expected to hold an auction in 2013 to refarm existing 1800 MHz, 2.3GHz and 2.5GHz spectrum bands from their current 3G use to 4G. The auction is designed to ensure service continuity beyond 2015 and 2017 when existing rights expire. As IDA is typically prudent in its long-range planning, we would not be surprised if the auction is held before mid-2013. The outcome is likely to be benign as sufficient spectrum is available and rationality should prevail amongst the telcos. While no reserve price has been set yet, we do not expect it to be significantly higher than the last round in 2010.
Underweight. We are underweight on the telco sector mainly because of our Sell call on SingTel, which is being challenged on many fronts, both domestic and overseas. In Singapore, margin downside is the biggest challenge as SingTel continues to compete on content even as it restructures away from a pure telco toward a multimedia strategy. In Australia, competitive pressures could start to simmer again given recent new capital received by smallest telco VHA, while India continues to be a nightmare of regulatory risks. SingTel is into its fourth year of declining earnings and if this continues, radical action may be called for at the management level.