SPH – CIMB
Lower dividends as expected
Media continues to be impacted by a weak advertising climate, leading to a fall in regular dividends. However, the cash from SPH REIT provides management with a war chest for property development, the success of which will be key to growing shareholder's wealth.
FY13 core earnings forms 94% of our full-year estimates. We deem it in line as the slight miss was due to a fall in investment income. Recurring earnings formed 100% of our estimates. We tweak FY14-15 forecasts on housekeeping matters, and introduce FY16 numbers. Our SOP-based target price rises as we roll over to end CY14. We maintain our Neutral rating.
FY13 highlights
Full-year core earnings fell 15% yoy on 1) lower newspaper revenues (-3.9%) due to the decline in advertising (-4%) and circulation revenues (-3.6%), 2) higher interest expense from the debt taken on at SPH REIT and 3) lower investment income.
Operating expenses rose (+3% yoy) due to writedowns relating to an overseas magazine subsidiary, but this should decrease as cost savings to the tune of S$19m was unveiled for 2014. Though there are no signs of a pick up in advertising revenues yet, the slight positive was that 4Q advertising revenues decline appears to have moderated. Property continues to do well with 3% rental increases coming from Paragon. Seletar Mall has secured Shaw Theatres, NTUC Foodfare and FairPrice Finest as anchor tenants.
S$100m new media fund
SPH is targeting acquisitions of new media start-ups to enhance its online offerings to advertisers. This leaves S$657m of the cash raised for property development.
22 Scts regular dividends
This is lower than FY12's 24 Scts. Management has guided that future dividends will depend on recurring earnings and that it will not dip into its cash balance. This means that investors should not expect a return to the 24 Scts level anytime soon, considering the loss of 30% property income.
SPH – OCBC
Twin initiatives for growth and cost savings
- FY13 figures mostly in line
- Cost savings of S$19m p.a. ahead
- S$100m New Media Fund
Final dividend of 15.0 S-cents per share SPH reported FY13 (ending 31 Aug) PATMI of S$431.0m – down 25.0% – mainly due to a lower fair value gain on investment properties and a S$40.4m increase in the “other operating expenses” item. This increase comprises S$26.0m of non-recurring charges, including an impartment of an overseas magazine subsidiary, and a S$8.0m hike in promotion costs for its online businesses. Accounting for one-time items, core PATMI is estimated at S$348.9m, which constitutes 96.5% of our FY13 forecast and is judged to be mostly in line. In terms of the topline, newspaper and magazine revenue for FY13 was S$991.2m, decreasing 3.9% YoY due to declines in both advertisement and circulation. A final dividend of 15.0 S-cents per share was announced.
Initiatives to generate S$19m cost savings per annum
SPH’s traditional newspaper and magazines business continue to face headwinds in the form of declining advertisement (down 4.0%) and circulation revenues (down 3.6%). On the cost-side of the equation, however, we saw staff cost decreasing 2.9% as variable bonuses were reduced. Newsprint prices also held steady at US$607 over 4QFY13. In addition, management has began cost-saving intitatives that are expected to generate savings of S$19m per annum. Over FY13, property rental income increased 3.5% due to higher rental rates from Paragon while income from Clementi Mall remained stable. Seletar Mall remains on track and we expect completion by Dec 14.
Driving growth in new media businesses
To further drive growth, SPH will set up a S$100m New Media Fund to invest in mediarelated businesses. Currently, the group’s online classified businesses across SE Asia has an enterprise value of S$303m, and management expects its new media businesses, together with its retail property segment, to form two key pillars for growth ahead. Overall, we see management’s initiatives for growth and cost savings to be key positives and would look for execution and preliminary results over 1HFY14. Maintain HOLD with a fair value estimate of S$4.14.
SPH – OCBC
Twin initiatives for growth and cost savings
- FY13 figures mostly in line
- Cost savings of S$19m p.a. ahead
- S$100m New Media Fund
Final dividend of 15.0 S-cents per share SPH reported FY13 (ending 31 Aug) PATMI of S$431.0m – down 25.0% – mainly due to a lower fair value gain on investment properties and a S$40.4m increase in the “other operating expenses” item. This increase comprises S$26.0m of non-recurring charges, including an impartment of an overseas magazine subsidiary, and a S$8.0m hike in promotion costs for its online businesses. Accounting for one-time items, core PATMI is estimated at S$348.9m, which constitutes 96.5% of our FY13 forecast and is judged to be mostly in line. In terms of the topline, newspaper and magazine revenue for FY13 was S$991.2m, decreasing 3.9% YoY due to declines in both advertisement and circulation. A final dividend of 15.0 S-cents per share was announced.
Initiatives to generate S$19m cost savings per annum
SPH’s traditional newspaper and magazines business continue to face headwinds in the form of declining advertisement (down 4.0%) and circulation revenues (down 3.6%). On the cost-side of the equation, however, we saw staff cost decreasing 2.9% as variable bonuses were reduced. Newsprint prices also held steady at US$607 over 4QFY13. In addition, management has began cost-saving intitatives that are expected to generate savings of S$19m per annum. Over FY13, property rental income increased 3.5% due to higher rental rates from Paragon while income from Clementi Mall remained stable. Seletar Mall remains on track and we expect completion by Dec 14.
Driving growth in new media businesses
To further drive growth, SPH will set up a S$100m New Media Fund to invest in mediarelated businesses. Currently, the group’s online classified businesses across SE Asia has an enterprise value of S$303m, and management expects its new media businesses, together with its retail property segment, to form two key pillars for growth ahead. Overall, we see management’s initiatives for growth and cost savings to be key positives and would look for execution and preliminary results over 1HFY14. Maintain HOLD with a fair value estimate of S$4.14.
SMRT – OCBC
Laying low
- Free-ride scheme increasing ridership
- Weakness priced in by the street
- A stable share price for now?
Rail ridership figures exceed 60m for first time
The free MRT ride scheme introduced on 24 Jun has seen rail ridership figures for Jul and Aug exceed 60m rides for the first time in SMRT’s history. The incentive to promote travel to 16 designated MRT stations in the city area before 8am has also aided in the alleviation of a congested rail system during the morning peak periods. In terms of financials, SMRT will bear the cost of free travel up to S$5m and the relevant authorities will compensate the company for the remainder.
More of the same for 2Q14 results
We expect SMRT’s upcoming 2Q14 results to be similar with 1Q14: slight revenue growth with higher operating expenses – namely staff, depreciation and repair/maintenance – causing operating profit to decline by doubledigits YoY. On a segmental basis, bus operations will likely extend its streak of 11 consecutive quarters of losses (but we assume no asset impairments); rail profitability will be lower as well. The taxi, rental and advertising segments should stay positive and provide some consolation to SMRT.
Upgrade to HOLD on valuation grounds SMRT is unlikely to see an uptick in its share price due to the lack of a fare increase (delay by the Fare Review Mechanism Committee) and pressures on operating expenses. However, since the end of Aug, SMRT’s share price has stabilised between a tight band of 1.29-1.30, which has helped to arrest its slide of 10% following its 1Q14 results. The lower frequency of bad publicity has definitely aided the company, and we believe that the street has already factored in the majority of the negative expectations for FY14 as well as concerns over capex requirements. As SMRT is currently trading close to our unchanged fair value estimate of S$1.30, we upgrade the counter to HOLD on valuation grounds ahead of its 2Q14 results release at the end of the month.
SMRT – OCBC
Laying low
- Free-ride scheme increasing ridership
- Weakness priced in by the street
- A stable share price for now?
Rail ridership figures exceed 60m for first time
The free MRT ride scheme introduced on 24 Jun has seen rail ridership figures for Jul and Aug exceed 60m rides for the first time in SMRT’s history. The incentive to promote travel to 16 designated MRT stations in the city area before 8am has also aided in the alleviation of a congested rail system during the morning peak periods. In terms of financials, SMRT will bear the cost of free travel up to S$5m and the relevant authorities will compensate the company for the remainder.
More of the same for 2Q14 results
We expect SMRT’s upcoming 2Q14 results to be similar with 1Q14: slight revenue growth with higher operating expenses – namely staff, depreciation and repair/maintenance – causing operating profit to decline by doubledigits YoY. On a segmental basis, bus operations will likely extend its streak of 11 consecutive quarters of losses (but we assume no asset impairments); rail profitability will be lower as well. The taxi, rental and advertising segments should stay positive and provide some consolation to SMRT.
Upgrade to HOLD on valuation grounds SMRT is unlikely to see an uptick in its share price due to the lack of a fare increase (delay by the Fare Review Mechanism Committee) and pressures on operating expenses. However, since the end of Aug, SMRT’s share price has stabilised between a tight band of 1.29-1.30, which has helped to arrest its slide of 10% following its 1Q14 results. The lower frequency of bad publicity has definitely aided the company, and we believe that the street has already factored in the majority of the negative expectations for FY14 as well as concerns over capex requirements. As SMRT is currently trading close to our unchanged fair value estimate of S$1.30, we upgrade the counter to HOLD on valuation grounds ahead of its 2Q14 results release at the end of the month.