SPH – DBSV
Hit by one-off payments
- 2Q14 results were below expectations, hit by lower ad revenues and higher staff bonus payments
- Declared 7 Scts interim DPS, similar to 1H13
- Revised FY14F/15F earnings by +4%/-12%; cut TP to S$4.14, downgrade to HOLD on muted outlook
Results miss expectations. This was on the back of lower revenues and higher staff costs. Headline net profit grew 8% y-o-y to S$81.3m but this was helped by S$52.9m one-off gain from the sale of partial stake in the regional online classified business. Excluding this, net profit was only S$28.4m largely due to higher staff costs (+$17.8m), a one-off impairment charge for the removal of a press line (S$9.9m), and impairment charge for investments (S$6m). On the positive side, SPH declared 7 Scts interim DPS, similar to 1H13.
Newspaper ad revenue remained weak. Group revenue dipped 1.2% to S$278.8m due to weaker contribution from newspaper and magazines (-5.7%), partly offset by higher property contribution (+3%) and ‘Other’ segment. Newspaper ad revenue fell 7% y-o-y following a 7% and 7.9% drop in display and classifieds ads, respectively, on weaker contribution from property and auto segments.
Higher staff costs (+18%) a surprise. Staff costs surged 18% y-o-y to S$101.1m in the quarter because of a one-off special bonus payments for prior year (S$10.4m) arising from REIT profits and revised bonus computation as incentive to drive growth. We expect the bonus payments to largely negate cost savings initiatives that are projected to reap S$19m in annual savings.
Downgrade to HOLD; cut TP to S$4.14. We revised FY14F/15F earnings by +4%/-12% after factoring in weaker than-expected ad revenues and higher costs, and the S$52.9m extra gain in FY14F. This reduced our sum-of-parts TP to S$4.14. The Group’s core ad revenues will remain muted, which suggest limited earnings upside. But the share price is supported by a strong balance sheet with S$1.7bn cash and investments and 5.2% yield.
SPH – DBSV
Hit by one-off payments
- 2Q14 results were below expectations, hit by lower ad revenues and higher staff bonus payments
- Declared 7 Scts interim DPS, similar to 1H13
- Revised FY14F/15F earnings by +4%/-12%; cut TP to S$4.14, downgrade to HOLD on muted outlook
Results miss expectations. This was on the back of lower revenues and higher staff costs. Headline net profit grew 8% y-o-y to S$81.3m but this was helped by S$52.9m one-off gain from the sale of partial stake in the regional online classified business. Excluding this, net profit was only S$28.4m largely due to higher staff costs (+$17.8m), a one-off impairment charge for the removal of a press line (S$9.9m), and impairment charge for investments (S$6m). On the positive side, SPH declared 7 Scts interim DPS, similar to 1H13.
Newspaper ad revenue remained weak. Group revenue dipped 1.2% to S$278.8m due to weaker contribution from newspaper and magazines (-5.7%), partly offset by higher property contribution (+3%) and ‘Other’ segment. Newspaper ad revenue fell 7% y-o-y following a 7% and 7.9% drop in display and classifieds ads, respectively, on weaker contribution from property and auto segments.
Higher staff costs (+18%) a surprise. Staff costs surged 18% y-o-y to S$101.1m in the quarter because of a one-off special bonus payments for prior year (S$10.4m) arising from REIT profits and revised bonus computation as incentive to drive growth. We expect the bonus payments to largely negate cost savings initiatives that are projected to reap S$19m in annual savings.
Downgrade to HOLD; cut TP to S$4.14. We revised FY14F/15F earnings by +4%/-12% after factoring in weaker than-expected ad revenues and higher costs, and the S$52.9m extra gain in FY14F. This reduced our sum-of-parts TP to S$4.14. The Group’s core ad revenues will remain muted, which suggest limited earnings upside. But the share price is supported by a strong balance sheet with S$1.7bn cash and investments and 5.2% yield.
M1 – OCBC
Decent start to FY14; maintain HOLD
- NPAT met 26% of our FY forecast
- Still sees moderate earnings growth
- Limited upside from here
Decent start to FY14
M1 Ltd posted 1Q14 revenue of S$240.2m, though down 1.2% YoY and 13.8% QoQ, it still met about 23.4% of our FY14 forecast. Thanks to an improvement in service EBITDA margin to 40.0% from 38.2% in 4Q13 and 39.5% in 1Q13, net profit grew 4.3% YoY and 5.6% QoQ to S$42.8m, or about 25.8% of our full-year forecast. Besides lower handset costs, M1 also benefited from lower traffic expenses. But wholesale costs of fixed services increased due to higher customer base and management expects these costs to rise further as it continues to grow its customer base.
No change to moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage as customers upgrade their smartphone plans. Management notes that already 54% are on tiered pricing, while 16% of them exceeded their data bundles, which now cost twice as much per GB with a higher cap of S$188 versus S$94 previously. M1 has kept its capex guidance at S$130m as it upgrades its network to LTE-Advanced by end-2014. It also plans to launch VoLTE (voice over LTE) in the coming months. In addition, M1 believes that the declining ARPU in its fixed services segment is not “structural”, but mainly due to promotions (quarterly due to the trade shows).
Maintain HOLD with unchanged S$3.30 fair value
As the earnings were mostly in line with our forecasts, we opt not to adjust our numbers at this stage. Although post-paid acquisition cost came down, we believe it could rise again with the launch of the Samsung S5 in 2Q and possibly the new Apple iPhone 6 in 3Q. As we are retaining our DCF-based fair value at S$3.30, we see limited upside from here. Maintain HOLD.
M1 – OCBC
Decent start to FY14; maintain HOLD
- NPAT met 26% of our FY forecast
- Still sees moderate earnings growth
- Limited upside from here
Decent start to FY14
M1 Ltd posted 1Q14 revenue of S$240.2m, though down 1.2% YoY and 13.8% QoQ, it still met about 23.4% of our FY14 forecast. Thanks to an improvement in service EBITDA margin to 40.0% from 38.2% in 4Q13 and 39.5% in 1Q13, net profit grew 4.3% YoY and 5.6% QoQ to S$42.8m, or about 25.8% of our full-year forecast. Besides lower handset costs, M1 also benefited from lower traffic expenses. But wholesale costs of fixed services increased due to higher customer base and management expects these costs to rise further as it continues to grow its customer base.
No change to moderate earnings growth outlook
Going forward, management believes that it can continue to achieve moderate earnings growth (within the single-digit range), aided by increased mobile data usage as customers upgrade their smartphone plans. Management notes that already 54% are on tiered pricing, while 16% of them exceeded their data bundles, which now cost twice as much per GB with a higher cap of S$188 versus S$94 previously. M1 has kept its capex guidance at S$130m as it upgrades its network to LTE-Advanced by end-2014. It also plans to launch VoLTE (voice over LTE) in the coming months. In addition, M1 believes that the declining ARPU in its fixed services segment is not “structural”, but mainly due to promotions (quarterly due to the trade shows).
Maintain HOLD with unchanged S$3.30 fair value
As the earnings were mostly in line with our forecasts, we opt not to adjust our numbers at this stage. Although post-paid acquisition cost came down, we believe it could rise again with the launch of the Samsung S5 in 2Q and possibly the new Apple iPhone 6 in 3Q. As we are retaining our DCF-based fair value at S$3.30, we see limited upside from here. Maintain HOLD.
SPH – OSK DMG
Inefficient Use Of Capital
Taking off the one-off items, SPH’s 2QFY14 results came in below expectation with SGD51.2m PATAMI (-32.3% y-o-y) on the back of SGD211.6m revenue (-5.7% y-o-y). This was largely on its poor print business and investment performance. While the business generates strong cash flow, we downgrade to SELL as we consider the company’s use of capital is not efficient.
Traditional print business a concern. Revenue from Singapore Press (SPH)’s newspaper and magazine (N&M) segment fell badly by 5.7% y-o-y as both advertisement and circulation revenue declined 6.6% and 3.8% respectively. The steep decline in advertisement topline was attributable to the Government’s cooling measures on the property and automotive markets. Going forward, management also shared its concerns over recent tragedies, ie the missing flight MH370 and the kidnapping of a Chinese tourist in Sabah, which may affect the local tourism industry and, in turn, hurt SPH’s advertisement business.
Costs will continue to go up. SPH announced initiatives to eventually achieve opex savings by SGD19m. However, we expect such savings to be offset by growing business costs like rising wages and utilities bills. Furthermore, the group recently adopted a new profit-driven remuneration system that will see costs go up by about SGD10m annually, albeit aimed at driving profit growth.
Lacklustre investment performance. Notably, SPH took an impairment on investments of SGD6.0m in the quarter under review, citing prolonged decline in value. Taking off this impairment, the group generated SGD5.9m in income from investments in 1HFY14 (-19.2% y-o-y). In our view, with SGD1.2bn book value of investments as at end 2QFY14, and SGD660.3m in cash, its use of capital is not efficient, in our view.
Downgrade to SELL. We believe that SPH should increase its payout or even carry out a capital reduction. We lower our TP to SGD3.57 (from SGD3.70), which is based on SOP valuation. This implies a 16.7x FY14 PE and 6.2% FY14 yield.