SPH – OCBC
Robust 1Q11 performance
Robust underlying performance in 1Q11. Singapore Press Holdings (SPH) kicked off its FY11 on sound footing with 1Q11 revenue of S$318.7m (down 10.0% YoY) and net profit of S$102.3m (down 29.3% YoY). The decline was attributed to the absence of revenue recognition from the group’s Sky@eleven development, which was completed in May 10. Excluding Sky@eleven’s contribution in 1Q10, the group’s comparable revenue would have grown by 12.3% YoY while recurring earnings would have improved by 6.6% YoY. Sequentially, these represented a 8.6% improvement in revenue and a 35.9% jump in net profit. No dividends were declared for 1Q11.
Driven by broad-based growth across all segments. Stripping away Sky@eleven’s contribution in 1Q10, SPH’s comparable performance was driven by broad-based growth across all segments. The Newspaper and Magazine segment delivered a 9.2% YoY increase in sales to S$265.5m, buoyed by a 13.1% gain in print advertisement revenue thanks to stronger demand for display and recruitment advertisements. Rental income from Paragon improved by 26.1% to S$36.8m on the back of rental revisions and increased floor area following recent facade enhancement initiatives. Revenue from the group’s other businesses rose 45.7% to S$16.4m thanks to stronger performance from its internet, outdoor and events management businesses. Despite higher staff and newsprint costs, operating margins were well-controlled at 39.8% in 1Q11 vs. 40.3% in 1Q10.
Economic recovery and Clementi Mall to buoy future performance; maintain BUY. Going forward, we expect SPH’s growth to be supported by (i) stronger advertising demand along with Singapore’s sustained economic growth coupled with improving consumer confidence, and (ii) contributions from Clementi Mall, which is slated for official opening in Apr 11. 85% of retail space has already been taken up to-date, and management expects full tenancy commitment when the mall officially opens. We are keeping our earnings projections and S$4.59 fair value estimate intact. Dividend yield is attractive at ~6%. We maintain our BUY rating on SPH. Key risks include (i) inflationary cost pressure arising from higher newsprint prices, as well as (ii) caps on Clementi Mall’s rental rate – our Reit analyst has cautioned that new supply of retail space could depress rental growth at neighbourhood malls.
SPH – OCBC
Robust 1Q11 performance
Robust underlying performance in 1Q11. Singapore Press Holdings (SPH) kicked off its FY11 on sound footing with 1Q11 revenue of S$318.7m (down 10.0% YoY) and net profit of S$102.3m (down 29.3% YoY). The decline was attributed to the absence of revenue recognition from the group’s Sky@eleven development, which was completed in May 10. Excluding Sky@eleven’s contribution in 1Q10, the group’s comparable revenue would have grown by 12.3% YoY while recurring earnings would have improved by 6.6% YoY. Sequentially, these represented a 8.6% improvement in revenue and a 35.9% jump in net profit. No dividends were declared for 1Q11.
Driven by broad-based growth across all segments. Stripping away Sky@eleven’s contribution in 1Q10, SPH’s comparable performance was driven by broad-based growth across all segments. The Newspaper and Magazine segment delivered a 9.2% YoY increase in sales to S$265.5m, buoyed by a 13.1% gain in print advertisement revenue thanks to stronger demand for display and recruitment advertisements. Rental income from Paragon improved by 26.1% to S$36.8m on the back of rental revisions and increased floor area following recent facade enhancement initiatives. Revenue from the group’s other businesses rose 45.7% to S$16.4m thanks to stronger performance from its internet, outdoor and events management businesses. Despite higher staff and newsprint costs, operating margins were well-controlled at 39.8% in 1Q11 vs. 40.3% in 1Q10.
Economic recovery and Clementi Mall to buoy future performance; maintain BUY. Going forward, we expect SPH’s growth to be supported by (i) stronger advertising demand along with Singapore’s sustained economic growth coupled with improving consumer confidence, and (ii) contributions from Clementi Mall, which is slated for official opening in Apr 11. 85% of retail space has already been taken up to-date, and management expects full tenancy commitment when the mall officially opens. We are keeping our earnings projections and S$4.59 fair value estimate intact. Dividend yield is attractive at ~6%. We maintain our BUY rating on SPH. Key risks include (i) inflationary cost pressure arising from higher newsprint prices, as well as (ii) caps on Clementi Mall’s rental rate – our Reit analyst has cautioned that new supply of retail space could depress rental growth at neighbourhood malls.
SPH – BT
SPH posts Q1 net profit of $102.3m
Drop of 29% mainly due to absence of previous profit from Sky@eleven project
SINGAPORE Press Holdings (SPH) yesterday reported a first-quarter net profit of $102.3 million, a 29 per cent decline mainly because performance in the year-ago quarter was boosted by profit from its Sky@eleven property project.
In Q1 last year, the group posted net profit of $144.7 million that included a $50.3 million profit from its completed Sky@eleven condominium development, whose final profit was recognised in Q4 2010.
Group operating revenue fell 10 per cent to $318.7 million for the three months ended Nov 30, 2010. Again, this was because revenue from Sky@eleven of $70.1 million was recognised in the corresponding quarter last year; excluding which revenue rose 12 per cent. Excluding Sky@eleven profit for Q1 2010, the group’s recurring earnings grew 6.6 per cent, or $7.2 million.
Earnings per share for the first quarter thus fell to six cents from nine cents for the same quarter last year. But net asset value per share at end-November rose to $1.46, from $1.39 at the end of FY2010 on Aug 31 last year.
The core newspaper and magazine segment generated revenue of $265.5 million for the group, 9 per cent up from the same quarter a year ago. More display and recruitment ads drove print advertisement revenue 13 per cent higher to $206.3 million, offsetting the 2.1 per cent dip in circulation revenue as fewer copies were sold.
Under the property division, Paragon generated 26 per cent more rental income for Q1 than it did a year ago, partly due to rental revisions and increased floor area after a facade enhancement.
SPH also said that 85 per cent of Clementi Mall’s retail space has been taken up so far, and stores on the lower levels have opened for business. Full tenancy commitment is expected by the official opening in April.
SPH’s other arms – such as the Internet, outdoor advertising and events management businesses – saw operating revenue rise 46 per cent to $16.4 million.
On the costs front, higher newsprint and other production costs drove materials, consumables and broadcasting costs 15 per cent higher, by $5.4 million. Newsprint prices are expected to rise moderately this year due to cost pressures and rising demand, the group said.
Staff costs rose 16 per cent too, due to higher variable bonus provisions and partial wage restorations. The wage bill for Q1 2010 had been lower, thanks to the Jobs Credit scheme.
SPH chief executive Alan Chan said that the group’s advertising revenue would continue to track the Singapore economy, now expected to grow at a modest pace. The board expects the recurring earnings of SPH’s media and property businesses for the current financial year to be satisfactory.
SPH shares closed flat at $3.98 before its results were announced yesterday.
SMRT – OCBC
Better connectivity with Tuas West Extension
Tuas West Extension a positive for SMRT… Transport Minister Mr Raymond Lim shed more light on details of the Tuas West Extension on Wed. The new MRT line, which is 7.5km long and consists of four aboveground stations, will extend the existing East-West Line from Joo Koon into Tuas West. We understand that the rail project is projected to cost S$3.5b and will encompass the costs of the new stations, 13 new trains, a 26ha depot and a road viaduct running along the MRT line. When operational in 2016, the extension is expected to serve 100k passengers daily. We see SMRT as the main beneficiary of this development, as it is poised to capture more ridership from this significantly improved connectivity.
…although near-term pressures still exist. In the near term, however, we maintain our view that SMRT is likely to face challenging business conditions due to continuing losses from the Circle Line (CCL) and inflationary cost pressures. In the same announcement, the Transport Minister also updated that the rest of the CCL (Stage 4-5) is expected to open in 4Q11, while the CCL Extension from Promenade to Marina Bay Station is likely to be ready in 2012. As management has previously guided that the CCL network is not expected to breakeven until the line becomes fully operational, this supports our view that the CCL will continue to be the main drag on its bottomline in the coming months. Moreover, the higher operating costs associated with the ramp up of the CCL operations may be aggravated by an overall increase in energy costs. According to US Energy Information Administration (EIA) and Energy Market Company (EMC), both the recent wholesale electricity prices as well as the 2011 WTI crude oil price forecast are showing a positive trend. This suggests that SMRT may face further pressures on its operating costs.
Maintain HOLD and S$2.16 fair value. In view of the above reasons, we are keeping our cautious view on SMRT, notwithstanding the positive long-term growth prospects in the public land transport sector. We also maintain our FY11-12 forecasts and DDM-based fair value of S$2.16 pending the release of its 3QFY11 results on 28 Jan 2011. At current price level, upside potential appears limited (although the impending outcome of Downtown Line operator tender may influence its share price). Maintain HOLD on SMRT based on valuation grounds.
M1 – Kim Eng
Nice way to start the new year
Event
• M1 will report its full‐year FY10 results next Wednesday. While we expect the results to be good but not extraordinary, its share price has risen 12% since early last month on dividend expectations and perhaps, market speculation that it may be the next takeover target, as Axiata owns close to 30% stake. But we do not think the Malaysian mobile operator will want to buy the rest of M1 or to sell its stake. Nevertheless, as our target price has been increased to $2.88 (16% upside) upon rolling over to FY11 forecast, we maintain our BUY call.
Our View
• M1 will report FY10 results next Wednesday after the market closes. We expect revenue to grow 10.5% YoY to $239m and earnings to rise 4% YoY but fall 1.5% QoQ on higher year‐end A&P expenses and smartphone subsidies. Also, the final dividend per share of $0.078 is expected to exceed FY09’s $0.072 for a total full‐year DPS of $0.142.
• In the light of recent M&A events, M1 stands out for its significant Malaysian interest. Mobile operator Axiata owns a 29.5% stake, or 265.4m shares, of which 118.5m shares were acquired from former shareholders C&W and PCCW at $2.20 a share and the rest at $1.85‐2.05 between August 2005 and March 2006. Add $0.55 in dividends paid since FY06, Axiata’s average cost could be as low as $1.50.
• However, we think it is unlikely that Axiata would want to take over M1 or to sell its stake. It has been scaling back capex in recent years and has just reduced its net debt/EBITDA to below 1x. Our Axiata analyst also believes buying M1 would eat into its funding for other more important investments. On the flip side, it would be difficult for Axiata to find another investment that can yield more than 10% annually. However, a potential buyer may have to pay as high as $3.54, going by our DCF valuation.
Action & Recommendation
We maintain our BUY call and raise our target price to $2.88 (from $2.63) as we roll over to FY11 valuation target of 15x PER and 5% dividend yield.