Singapore Press Holdings

Kim Eng on 15 Apr 2013

Results hurt by government cooling measures. SPH’s 2QFY8/13 results were weaker than expected. 2QFY13 Revenue came in at SGD282m (-5.5% yoy) and net profit also dropped to SGD72m (-14.7% yoy). Government regulations on property and automotive sector (increase in second-home buyer’s stamp duty and the restriction on car loans) badly hurt the ad revenue in those two sectors and were the main driver for the 10% decline in display ad revenue. The exhibition revenue was also affected by Suntec renovation. However, the earnings dip will not last long in our view, and the dividends track record is sustainable at least until the REIT spinoff takes place. Maintain BUY with target price unchanged at SGD4.95 based on SOTP methodology.

We expect a recovery in next quarter, especially in property advertising revenue. SPH’s property ad revenue experienced a sudden drop in January after the government announced the latest round of property cooling measures. However management indicated that the property ad revenue started to recover since late March. We expect this momentum to continue into next quarter backed by the abundant new homes supply in the coming months.

REIT spinoff. We understand that the REIT spinoff plan is under study. Although management did not give much detail on its plan, we believe that the proceeds from REIT spinoff will be properly reinvested to pursue a better return. SPH could become more aggressive and hard working in property sector. It also could make more acquisitions beyond property sector, such as in internet and digital media field. In fact, SPH has realized the importance of digital media and invested in this field. For example, it launched The Straits Times’ iPad apps, which has bear fruit. Digital copies circulation has more than doubled in 1HFY13 compared with a year ago.

Recommendation. Despite a weak quarter, SPH maintained its dividends track record declaring an interim dividend of 7 cents per share. We believe that the stable cash flow could sustain a dividend of 24cts/share at least until the REIT spinoff takes place, which would further unlock value for SPH shareholders. Maintain BUY and target price of SGD4.95.