SPH – CIMB
Downside risks
While SPH’s 6% yields are fairly attractive, we see downside with streetyet to factor in a sufficient falloff in ad growth momentum and investment income. Balance sheet is however strong, which coupled with recurring cash flows, could prompt us to revisit the stock.
FY11 core profit was in line at 102% of our estimate though final dividend of 17scts beat our expectations on a higher payout. We are however lowering our EPS estimates on reduced ad revenue forecast and investment income. Coupled with lower property valuations, we lower our sum-of-parts target price to S$3.90 from S$4.24. Maintain Neutral.
Falloff in ad growth momentum imminent
While print revenue chalked up a modest 5.7% yoy growth in FY11 on stronger display ad sales, we see downside for growth momentum next year amidst a slowing domestic economy. Print revenue fell by 17% in the last downturn. With slowdown in economic growth next year, we moderate our FY12 print revenue growth estimate to +2%.
Reprieve from moderating cost pressures
Cost pressures could alleviate, given a variable performance component in staff cost and a moderation in newsprint costs (spot: US$680/MT). These could offer some reprieve should top-line growth fall.
Risks from investment portfolio
FY11 earnings were propped up partly by a 28% increase in investment income. With equities (mainly M1 and Starhub holdings) and investment funds (some S-REIT holdings) accounting for 33% and 25% of its investible funds, downside risks could prevail on a deep market correction.
Revisit at lower valuations
While dividend yields of 6% are fairly attractive, we see downside in ad growth, investment and property portfolio. We are lowering our valuations of Paragon and Clementi Mall. Balance sheet is however strong, which coupled with recurring cash flows, could prompt us to revisit the stock at lower valuations.
SPH – BT
SPH posts FY2011 net profit of $388.6m
THE financial year ended Aug 31 (FY2011) turned out to be a creditable performance for Singapore Press Holdings (SPH), underpinned by higher advertisement revenues, robust growth in rental income, and continued progress in the exhibitions and online businesses.
SPH achieved a net profit of $388.6 million for FY2011. Compared with FY2010’s $497.9 million net profit, the year when the group benefited from profits of $154.2 million from its Sky@eleven condo development, the FY2011 earnings were 22 per cent lower. But excluding the Sky@eleven effect, SPH’s group operating revenue surpassed the previous year’s by $91.5 million (7.9 per cent) and recurring earnings rose $24.1 million (6.3 per cent).
On the street, SPH’s results are in line with consensus as estimates compiled by Bloomberg reflected an expected net income of $380.3 million.
Earnings per share came in at 24 cents, down from FY2010’s 31 cents while group net asset value per share stayed at $1.39.
Group operating revenue, including other operating income, stayed above the billion dollar mark at $1.27 billion, down 9.2 per cent.
Revenue for the newspaper and magazine segment grew year-on-year by $39.2 million (4 per cent) to $1.01 billion. Print advertisement revenue rose by $41.6 million (5.7 per cent), boosted by strong display advertisement sales. Circulation revenue fell slightly by $1.9 million (0.9 per cent).
Rental income for the group continued to register robust growth in FY2011 with an increase of $33.4 million (24.9 per cent). Paragon contributed $15 million (11.4 per cent) to the rise on the back of higher rental rates. Clementi Mall achieved full occupancy, reporting a maiden rental income of $18.4 million.
Operating revenue from the group’s other businesses climbed 37.3 per cent to $69.8 million, driven by income from the exhibitions business for newly acquired and other shows, and higher revenue from online and other media businesses.
Newsprint costs were up $11.8 million (13.1 per cent) due to higher newsprint prices but partially cushioned by a favourable exchange rate. The increase in staff costs of $8 million (2.3 per cent) was attributable to salary increments and increased headcount, partially offset by a reduced variable bonus provision. Staff costs for FY2010 also included government jobs credit.
Other operating expenses rose $30 million (14.9 per cent), with factors including the commencement of Clementi Mall operations and costs incurred for newspaper subscription drives.
Investment income went up $11.1 million (28.3 per cent) to $50.4 million.
On the outlook for FY2012, CEO Alan Chan said: ‘The outlook remains uncertain amidst global economic woes. The group will continue to leverage on its key strengths and synergies to deliver shareholder value. Print advertisement revenue will continue to move in tandem with the performance of the Singapore domestic economy.’
SPH has proposed a final dividend of 17 cents per share, comprising a normal dividend of nine cents and a special dividend of eight cents. Together with the interim dividend paid, total dividend payout for FY2011 will be 24 cents.
SPH shares closed four cents higher at $3.78 yesterday, before its results announcement was made.
SATS – OCBC
Value in selling Daniels?
SATS confirmed it is in talks to sell Daniels. After news reports said it is looking to sell its U.K. subsidiary Daniels Group (Daniels), SATS Ltd (SATS) formally clarified via the SGX website that it is 1) presently in talks with interested parties about the potential sale of Daniels; 2) there is no certainty that the deal will be done; and 3) Daniels will remain part of SATS if a sale does not materialise. Details from the news reports and SATS’ announcement are at best sketchy. Thus, it is uncertain if the sale will happen and there is no clarity on the transaction details, except for the two price tags of GBP150m and GBP200m mentioned in news reports.
Scenario analysis of the impact of selling Daniels. There is not enough publicly available information to determine the impact of the purported sale of Daniels. Instead of speculating, our scenario analysis illustrated in Exhibit 1 explores the possible impact on SATS’ fair value. Based on three possible net margins of 5%, 7% and 9% and two possible price tags of GBP150m and GBP200m, the scenario analysis resulted in six outcomes, ranging from a low of S$2.13 to a high of S$2.41 per share. Also, SATS should be able to book a gain on the sale of Daniels if the eventual sale price is GBP150m (S$302.8m) or higher since, at the end of FY11, SATS’ UK operations had a total book value of S$302.2m.
Daniels as a part of SATS. One thing we can infer from the purported sale of Daniels is the management probably does not view Daniels as an integral part of its vision for the future. And selling Daniels makes strategic sense for the group. While Daniels contributes revenue and is profitable, it has less synergistic values than other parts of SATS and is presumably harder to manage, since its operations are primarily located in the UK. By selling Daniels, SATS will also be able to remove a low-margin business, which is also susceptible to foreign exchange gains and losses.
Maintain HOLD. Since there is not enough publicly available information to determine the impact of the purported sale of Daniels, we maintain our fair value at $2.36 per share. Our fair value currently represents a 12.4% upside; but considering that uncertain equity market conditions are likely to prevail in the near to even medium term, we maintain our HOLD rating on SATS. We would be buyers closer to S$2.00.
SATS – OCBC
Value in selling Daniels?
SATS confirmed it is in talks to sell Daniels. After news reports said it is looking to sell its U.K. subsidiary Daniels Group (Daniels), SATS Ltd (SATS) formally clarified via the SGX website that it is 1) presently in talks with interested parties about the potential sale of Daniels; 2) there is no certainty that the deal will be done; and 3) Daniels will remain part of SATS if a sale does not materialise. Details from the news reports and SATS’ announcement are at best sketchy. Thus, it is uncertain if the sale will happen and there is no clarity on the transaction details, except for the two price tags of GBP150m and GBP200m mentioned in news reports.
Scenario analysis of the impact of selling Daniels. There is not enough publicly available information to determine the impact of the purported sale of Daniels. Instead of speculating, our scenario analysis illustrated in Exhibit 1 explores the possible impact on SATS’ fair value. Based on three possible net margins of 5%, 7% and 9% and two possible price tags of GBP150m and GBP200m, the scenario analysis resulted in six outcomes, ranging from a low of S$2.13 to a high of S$2.41 per share. Also, SATS should be able to book a gain on the sale of Daniels if the eventual sale price is GBP150m (S$302.8m) or higher since, at the end of FY11, SATS’ UK operations had a total book value of S$302.2m.
Daniels as a part of SATS. One thing we can infer from the purported sale of Daniels is the management probably does not view Daniels as an integral part of its vision for the future. And selling Daniels makes strategic sense for the group. While Daniels contributes revenue and is profitable, it has less synergistic values than other parts of SATS and is presumably harder to manage, since its operations are primarily located in the UK. By selling Daniels, SATS will also be able to remove a low-margin business, which is also susceptible to foreign exchange gains and losses.
Maintain HOLD. Since there is not enough publicly available information to determine the impact of the purported sale of Daniels, we maintain our fair value at $2.36 per share. Our fair value currently represents a 12.4% upside; but considering that uncertain equity market conditions are likely to prevail in the near to even medium term, we maintain our HOLD rating on SATS. We would be buyers closer to S$2.00.
SMRT – Kim Eng
Coming full circle
Event
• The final two stages of the Circle Line (CCL) will start operations from tomorrow. There will be 12 new stations, bringing the total number of CCL stations to 28. We understand that an extension with another two stations stretching from Promenade to the Marina Bay area will be launched in 1Q12. Despite the potential jump in ridership, we expect higher energy costs as a result of increased train runs to weigh on SMRT’s EBIT margin. Reiterate HOLD.
Our View
• The average ridership on the CCL currently is about 180,000 per day. With the opening of Stages 4 and 5 tomorrow, SMRT aims to achieve breakeven ridership of 330,000 per day in 6‐9 months’ time once commuters’ travel patterns stabilise. In our view, this projection seems overly optimistic given that the gestation period may be longer than expected. Ultimately, management targets a steady‐state ridership of 400,000‐500,000 daily.
• Rail revenue, however, will continue to lag ridership growth because of lower average fares with the implementation of the distance‐based fare system in July last year. We expect margin pressure to persist in the next few quarters with increased train frequency, which will further bump up electricity consumption. But there will be respite for SMRT from lower average tariffs in 2HFY Mar12 following the recent slide in fuel oil prices.
• Rental income, on the other hand, should receive a boost as retail space totalling 868 sq m at three new CCL stations – Holland Village (596.2 sq m), one‐north (248.3 sq m) and Botanic Gardens (23.5 sq m) – has been fully leased out. According to management, the entire CCL with a combined retail space of 3,150 sq m, or 80 shops, now enjoys a high occupancy rate of more than 90%.
Action & Recommendation
With no major near‐term catalysts in sight, we maintain our HOLD recommendation on SMRT with a target price of $1.82. The share price should be well‐supported by a decent dividend yield of almost 5%.