SPH – DMG
Property segment continues to support growth
In-line; 3QFY12 recurring earnings grew 2.2% YoY. 3QFY12 recurring earnings of S$113m (+25% QoQ) accounted for 25% of our full year estimate. However 3QFY12 PATMI was down 13% YoY to S$100m due to a 60% YoY decrease in investment income (from fx related losses and lower dividend income). Property segment contributed to growth with rental income up 13% YoY with higher contribution from Clementi Mall and higher rental rates from Paragon. We tune downwards our FY12/13 PATMI estimates by 2%/1% due to lower Newspaper & Magazine (N&M) segment income partially offset by higher property related income. Maintain NEUTRAL with lower SOTP TP of S$3.85 (from S$3.91 previously). SPH’s FY12 dividend yield of 5.9% remains attractive though we see a lack of near term catalysts that could lead to share price upside.
We expect N&M to be weaker on slower domestic economic outlook. N&M advertisement revenue is correlated to Singapore’s economic performance. On 13 Jul 12, our OSK|DMG economics team trimmed our Singapore 2012 GDP growth forecast by 1.4ppt to 2.6% (see report titled “Singapore: Growth Momentum Slowed in 2Q12”). We correspondingly lower our FY12/13 N&M ad revenue by 3.5%/4.6%. On a positive note, falling newspaper circulation volume creates somewhat of a natural hedge seen through a 5.1% YoY decrease in 3QFY12 newsprint costs.
Property segment supporting growth. Rental income was up 13% YoY to S$49m due to a fully operational Clementi Mall and higher rental rates from Paragon. Acquisition of the Sengkang commercial site was completed in Apr 12, and the prospective mall is expected to become operational from 2015 onwards.
SOTP-derived TP of S$3.85. We value the core media segment based on 11x FY12 P/E, Paragon (S$2.4b) 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 May 12.
SPH – Kim Eng
Cash is King
Respectable results. SPH announced its 3QFYMay12 results, which were broadly in line with market expectations. Top line registered a 0.9% yoy growth, driven by strong performance from the Property segment (+12.8% yoy) despite marginally decline from Newspaper & Magazine segment (-0.6% yoy). Core earnings increased by 2.2% yoy. Maintain BUY with target price of SGD4.43, based on SOTP valuation.
Core ads earnings remain stable. Print advertisement revenue remained stable with a marginally increase of SGD0.7m (+0.4% yoy) driven by 2.9% growth in Display ads. Circulation revenue declined in line with market expectation by SGD2m (-3.6% yoy) but circulation levels were maintained at an average of 1m copies daily.
Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In 3QFY12, rental income rose by SGD5.5m (+12.8%). This was driven by higher rental rate in Paragon as well as contribution from full operation of Clementi Mall.
Operating margin sustained at a healthy 33.5%. Average newsprint cost declined for the second consecutive quarter to USD677/ton from USD690/ton last quarter. Staff cost increased by SGD6m (+6.8%) due to increased headcount from the acquisitions. Operating margin was sustained at 33.5%, marginally improved from last year. Net profit of SGD100m was 13.1% less compared with a year ago. It is mainly because of a 60% decline in investment income due to mark-to-market losses in volatile market condition, which to us is not very worrying.
Maintain BUY, with SOTP TP of SGD4.43. We maintain our BUY call on SPH with SOTP TP of SGD4.43. We believe a potential spin-off of its retail assets will add value to shareholders. Valuation is not expensive at 15.6x FY13F PE and 3.0x FY13F PB given SPH’s monopoly position in media business. Downside should be protected by 6.5% dividends yield.
SMRT – TODAY
Dec disruptions burn S$4.4m hole in SMRT’s pockets
The two train service disruptions in December last year cost SMRT a whopping S$4.4 million in the last financial year, SMRT chairman Koh Yong Guan revealed for the first time yesterday in his speech at the transport operator’s annual general meeting.
The money went towards the legal and professional fees incurred after the disruptions, including rail-related studies and consultancy, an SMRT spokesperson said.
After a turbulent few months following the disruptions – during which a six-week public inquiry threw up damning assessment of SMRT’s maintenance regime and research houses expressed concern over its financials – Mr Koh sought to reassure shareholders present at the AGM that SMRT will seek to maintain its policy of paying at least 60 per cent of its profits after tax as dividends.
According to SMRT’s annual report, its profits after tax fell to S$119.9m, down from S$161.1m in the preceding financial year.
SMRT reduced its dividend per share to 7.45 cents, compared to 8.5 cents previously. Mr Koh said the reduction was “prudent” given SMRT’s cash availability, reduced profit and pressure on margins. He added: “The Board is mindful of the need to provide shareholders with a reasonable return.”
While expenses such as the S$900 million asset renewal plan it previously announced would have an impact on operating costs, Mr Koh said many of the recommendations made by the Committee of Inquiry can be incorporated with no significant additional cost. SMRT is also working with the Land Transport Authority on cost-sharing for projects like the re-signalling and re-sleepering projects.
Mr Koh also stressed that SMRT is “first and foremost an engineering and operations company” and its most important core business is to run a “safe and reliable MRT system in Singapore”. “We do not see running an efficient and reliable MRT system and running SMRT profitably as a public company as contradictory,” he said.
Mr Koh added that SMRT has already taken steps to augment its engineering and technical team, and SMRT will appoint more members with technical backgrounds and relevant expertise to its Trains Board to review and enhance the operator’s maintenance regime.
The operator’s allocation of resources and budget is consistent with its emphasis, said Mr Koh. He pointed out that 90 per cent of its 7,000 staff are working in the areas providing the train and bus services, and 90 per cent of its annual recurrent expenditure goes to these areas.
Mr Koh also highlighted the challenges of being a multi-modal public transport operator. While SMRT’s taxi business ha “turned around” last year, “the current regulatory regime and operating environment will not allow us to run a sustainable, profitable bus business”, Mr Koh said, citing structural issues where cost, particularly fuel cost, has “far outstripped fare adjustments”.
RafflesMed – OCBC
STILL POISED FOR GROWTH
•Strong beneficiary of medical travel growth
•Capacity to increase in stages
•Raising fair value to S$2.73
Healthy medical travel growth trend
We believe that Raffles Medical Group (RMG) would continue to benefit strongly from the healthy uptrend in medical travellers to the region, despite growing supply of new hospital beds from both local and regional competitors. This is premised on the group’s competitive pricing vis-à-vis its comparable peers, strong brand equity and continued drive to enhance the depth of its specialist offerings. Research firm Frost & Sullivan projected that the number of medical travellers to Singapore and the corresponding revenues generated would grow at a CAGR of 12.4% and 13.6% to 851k and S$2.03b, respectively, from 2012 to 2016.
Steady expansion plans to address rising demand
RMG’s new Specialist Centre in Orchard is scheduled to begin operations in 1H13, while its Raffles Hospital extension (additional 102,408 sf) is expected to be completed in early 2015. In the meantime, management has actively decanted some of its existing hospital facilities. This resulted in the opening of a Neuroscience specialist centre in Apr, while renovation works are ongoing for the expansion of its Health Screening facilities. We reckon this would improve its income streams as there could be follow-up treatment procedures.
Ease our margin assumptions slightly, but maintain BUY
RMG recently implemented wage increments across the board in 2Q12, driven by the Singapore government’s initiative to raise salaries in the public healthcare sector. We ease our EBIT margin assumptions and our PATMI forecasts for FY12 and FY13 are reduced by 2.1% and 1.4%, respectively. We believe that part of RMG’s cost pressure also arose from headcount expansion in preparation for the commencement of its new Specialist Centre. While these additional staff would also aid in the generation of revenue at existing premises now, pre-operating expenses incurred would cause some drag on its earnings as their contribution is not at an optimal level yet, in our view. We roll-forward our valuations to 24x blended FY12/13F EPS, which in turn raises our fair value estimate from S$2.58 to S$2.73. Maintain BUY.
RafflesMed – OCBC
STILL POISED FOR GROWTH
•Strong beneficiary of medical travel growth
•Capacity to increase in stages
•Raising fair value to S$2.73
Healthy medical travel growth trend
We believe that Raffles Medical Group (RMG) would continue to benefit strongly from the healthy uptrend in medical travellers to the region, despite growing supply of new hospital beds from both local and regional competitors. This is premised on the group’s competitive pricing vis-à-vis its comparable peers, strong brand equity and continued drive to enhance the depth of its specialist offerings. Research firm Frost & Sullivan projected that the number of medical travellers to Singapore and the corresponding revenues generated would grow at a CAGR of 12.4% and 13.6% to 851k and S$2.03b, respectively, from 2012 to 2016.
Steady expansion plans to address rising demand
RMG’s new Specialist Centre in Orchard is scheduled to begin operations in 1H13, while its Raffles Hospital extension (additional 102,408 sf) is expected to be completed in early 2015. In the meantime, management has actively decanted some of its existing hospital facilities. This resulted in the opening of a Neuroscience specialist centre in Apr, while renovation works are ongoing for the expansion of its Health Screening facilities. We reckon this would improve its income streams as there could be follow-up treatment procedures.
Ease our margin assumptions slightly, but maintain BUY
RMG recently implemented wage increments across the board in 2Q12, driven by the Singapore government’s initiative to raise salaries in the public healthcare sector. We ease our EBIT margin assumptions and our PATMI forecasts for FY12 and FY13 are reduced by 2.1% and 1.4%, respectively. We believe that part of RMG’s cost pressure also arose from headcount expansion in preparation for the commencement of its new Specialist Centre. While these additional staff would also aid in the generation of revenue at existing premises now, pre-operating expenses incurred would cause some drag on its earnings as their contribution is not at an optimal level yet, in our view. We roll-forward our valuations to 24x blended FY12/13F EPS, which in turn raises our fair value estimate from S$2.58 to S$2.73. Maintain BUY.