SGX Yield Stock

Positives in the price

• Results below; downgrade to Neutral from Outperform. 4Q10 net profit of S$75.3m (-44% yoy) was 21% and 10% below our forecast and consensus respectively on higher-than-expected staff and interest costs. FY10 net profit of S$497.9m (+18% yoy) was 4% below our forecast. Final dividend was 20scts/share (inclusive of special dividend of 11scts), slightly below our 22scts expectation. We cut our FY11-12 earnings estimates by 5% to incorporate higher staff and interest costs, mitigated by stronger print-ad revenue assumptions. We also introduce FY13 estimates and roll forward our valuation to CY12. Accordingly, our SOP-based target price climbs to S$4.51 from S$4.47. SPH’s share price has risen 15% since we upgraded it to Outperform in Jan 10. With positive ad demand likely priced in, we downgrade it to Neutral. Re-rating catalysts could come from higher-than-expected print-ad revenue and accretive property acquisitions, in our view.

• Higher staff costs eroded print-ad revenue growth. SPH’s operating revenue rose 6.1% in FY10 as stronger newspaper and magazine revenue (+9.2%) offset a 2.6% decline in property revenue. Led by strong display and recruitment ads, printad revenue surged 13.1% yoy to S$733.1m, beating our expectations. Circulation revenue, however, dipped 2.4%, while property revenue declined 2.6% on lower contributions from Sky@eleven (temporary occupation permit obtained in May 10) but higher rental contributions from Paragon. While newsprint costs slid 29% yoy, earnings were hurt by increased staff costs (+19%) with higher variable bonus provisions.

• Outlook. SPH expects newsprint prices to climb further in view of industry supply demand imbalances. It intends to raise its average ad ratio to above 60% from sub-60% levels to control its newsprint consumption, without hurting ad revenue. Observing trends of higher ad demand in the ‘Home’ section, it will be increasing its page count for this section from eight to 20. SPH will also step up marketing efforts to stem its dwindling circulation revenue. On the property front, marketing and fit-out work for The Clementi Mall is in progress. SPH remains on the lookout for long-term property investments, with a preference for suburban retail assets for their resilient cash flows.

All eyes on bulging cash hoard

Event

• Singapore Press Holdings (SPH) recorded revenue of $1,381.1m for FY Aug10, beating consensus and our estimates. But operating profit of $539.1m was 5% shy of our expectations due to higher staff bonuses. A final dividend of 20 cents per share was declared, giving shareholders a slightly higher‐than‐expected reward. Along with the interim DPS of 7 cents, the total yield amounts to 6.4%. Maintain BUY with the target price raised from $4.62 to $4.70.

Our View

• A jump in display and recruitment advertisements spawned 14.2% YoY growth in print advertisement revenue. Circulation revenue, however, continued to head south (‐2.4% YoY). To boost circulation, SPH is offering giveaways to draw new subscribers and retain existing ones. Nevertheless, the demand for print advertisement in FY Aug11F remains buoyant due to consumption growth.

• To enhance cost efficiency, SPH has adjusted its pagination for The Straits Times since August to optimise the layout for news reports and display ads. This initiative has reduced newsprint consumption, thus helping to offset the expected rise in newsprint prices. The new layout also allows the group to create more value for advertisers.

• Sales proceeds from Sky@Eleven has increased SPH’s investible fund from $0.8b to $1.5b. We believe its next bidding target could be the white site beside the Jurong East MRT station under the Government Land Sales programme. This area may be developed into a retail/commercial project. If an acquisition does not materialise, SPH could repay a $570m loan and still return surplus capital to shareholders as profitable investments become scarce.

Action & Recommendation

Our dividend forecast of 17.3 cents for FY Aug11 is based on a 90% payout. Our target price is raised slightly to $4.70 and we view value enhancing property acquisitions as positive catalysts. Maintain BUY.

Gunning for more properties

• FY10 results in line; final+special DPS of 20 Scents, above consensus but below ours

• Storing up for retail property investments; we expect participation in 2 HDB/URA retail/mixed sites

• Downgrade to Hold on limited upside, catalyst; TP reduced to S$4.37 as EPS trimmed a marginal 2%

• Share price supported by yield of c.5.7%

20 Scents DPS payable on 23 Dec. Final and special dividends (20 Scents) were a tad above consensus’ average, but below what we had hoped for. Nonetheless, it brings full year DPS to 27 Scents (FY09: 25 Scents). Dividend ex-date is 9 Dec and is payable on 23 Dec. Operating profits were within expectations on higher ad revenues (+9% to S$733m) on economic recovery, offset partially by lower property contributions (-3% to S$356m) with Sky11 TOP in May 10. Staff costs was higher (+19% to S$340.5), but was offset partially by lower newsprint (-29% to S$90m).

Looking for opportunities to further scale up on property. Management indicated that they would continue their opportunistic stance to bid for investment/ retail properties sites. We note that the Group’s short-term investments have almost doubled to c.S$897m as of FY10, largely from its MTN proceeds, to avail funds for sub-urban retail properties investment opportunities. In our view, the Group would be keen in the 2 commercial/ mixed sites in

Punggol and Paya Lebar (on reserve list) by HDB/ URA. However, with keen competition in this area, we believe that share price could be susceptible to outcome of the bids put in by the Group.

TP revised down to S$4.37; Downgrade to Hold on limited upside and catalysts. We adjusted our FY11F/12F earnings marginally by c.2% to account for higher operating expenses. As a result, our sum-of-parts TP is revised to S$4.37. Given limited upside, lack of firm catalyst ahead and uncertain outcome pertaining to the expected bids for investment property sites, we downgrade our recommendation to Hold. Notwithstanding our downgrade, we believe share price could still be supported by its attractive yield of c.5.7%.

Gunning for more properties

• FY10 results in line; final+special DPS of 20 Scents, above consensus but below ours

• Storing up for retail property investments; we expect participation in 2 HDB/URA retail/mixed sites

• Downgrade to Hold on limited upside, catalyst; TP reduced to S$4.37 as EPS trimmed a marginal 2%

• Share price supported by yield of c.5.7%

20 Scents DPS payable on 23 Dec. Final and special dividends (20 Scents) were a tad above consensus’ average, but below what we had hoped for. Nonetheless, it brings full year DPS to 27 Scents (FY09: 25 Scents). Dividend ex-date is 9 Dec and is payable on 23 Dec. Operating profits were within expectations on higher ad revenues (+9% to S$733m) on economic recovery, offset partially by lower property contributions (-3% to S$356m) with Sky11 TOP in May 10. Staff costs was higher (+19% to S$340.5), but was offset partially by lower newsprint (-29% to S$90m).

Looking for opportunities to further scale up on property. Management indicated that they would continue their opportunistic stance to bid for investment/ retail properties sites. We note that the Group’s short-term investments have almost doubled to c.S$897m as of FY10, largely from its MTN proceeds, to avail funds for sub-urban retail properties investment opportunities. In our view, the Group would be keen in the 2 commercial/ mixed sites in

Punggol and Paya Lebar (on reserve list) by HDB/ URA. However, with keen competition in this area, we believe that share price could be susceptible to outcome of the bids put in by the Group.

TP revised down to S$4.37; Downgrade to Hold on limited upside and catalysts. We adjusted our FY11F/12F earnings marginally by c.2% to account for higher operating expenses. As a result, our sum-of-parts TP is revised to S$4.37. Given limited upside, lack of firm catalyst ahead and uncertain outcome pertaining to the expected bids for investment property sites, we downgrade our recommendation to Hold. Notwithstanding our downgrade, we believe share price could still be supported by its attractive yield of c.5.7%.

SPH full-year net up 18% on record revenue

Higher ad sales, profits from Sky@eleven boost bottom line

A REBOUND in advertisement sales plus property profits from Sky@eleven helped drive Singapore Press Holdings’ full-year net profit 18 per cent higher to $498 million, from last year’s $422 million.

The group yesterday posted record operating revenue of $1.38 billion for the year ended Aug 31, 2010 – up 6.1 per cent from FY2009’s $1.3 billion. Recurring earnings, too, rose 8.5 per cent to a record $539 million.

Investment income was $39.3 million – a turnaround from last year’s loss of $6.2 million.

‘Overall performance this year has been a big improvement over that of the previous year,’ SPH chairman Tony Tan said at a media briefing.

The board has recommended a final dividend of 20 cents a share – comprising a normal dividend of nine cents and a special dividend of 11 cents – to be paid on Dec 23. Including the interim dividend, the total payout for FY2010 will be 27 cents a share – or 6.4 per cent based on yesterday’s closing share price of $4.22.

Fifteen estimates compiled by Bloomberg had analysts expecting SPH to announce net earnings of about $511.2 million.

Actual earnings per share came in at 31 cents, up from 26 cents a year back. Net asset value per share was $1.39 as at Aug 31, up from $1.28 a year earlier.

Revenue from the core newspaper and magazine segment grew 9.2 per cent to $974.1 million. Print ad revenue surged 13.1 per cent to $733.1 million, but circulation revenue fell $5.1 million due to fewer copies sold.

Dr Tan said: ‘The newspaper and print business is still alive and well in Singapore, and we are optimistic that this will continue to be so for some years to come.

‘But we must not be complacent and rest on our laurels, so we continue to investigate new business areas in new media, as well as in exhibitions, displays, to see what opportunities there may be, including, of course, in property development.’

Revenue from the property division fell 2.6 per cent to $356.1 million in FY2010, as higher rental income from the Paragon complex in Orchard Road was offset by a lower year-on-year contribution from Sky@eleven at Thomson. The condominium development obtained its Temporary Occupation Permit in May and final profit has now been recognised.

Total operating expenses rose due to a 19 per cent increase in staff costs resulting from a higher variable bonus provision, as newsprint costs fell 29 per cent.

Newsprint prices are expected to rise in the coming year, with SPH saying it will monitor these closely. Print advertisement revenue is expected to move in tandem with Singapore’s domestic economy. SPH chief executive Alan Chan said the economic outlook remains healthy, though worries of a double dip still linger.

In the coming year, a new mall in SPH’s portfolio is due to open in two phases between January and March. The group also expects to strengthen Sphere Exhibit’s foray into the MICE sector through new acquisitions, Mr Chan said.

SPH shares closed a cent lower at $4.22 yesterday, before its results announcement was made.