Event:
Singapore Press Holdings’ (SPH) 3QFY Aug11 operating revenue rose by 4.4% YoY to $328.8m (excluding the Sky@Eleven effect). The weaker classified ad revenue, which dragged down Newspaper & Magazine revenue, was partially offset by healthy revenue growth in its rental, Internet and exhibition businesses. However, with no compelling growth catalyst in sight, we downgrade our recommendation to HOLD with a lower target price of $4.32.
Our View:
Year-to-date, the group’s operating profit (excluding investment income) of $305.4m came in slightly below expectations due to minor gestation losses at Clementi Mall, higher staff costs and weaker classified ad revenue.
Based on our page count of The Straits Times’ Saturday edition, the volume of classified ads declined by 19% YoY between March and May, and continued to slide in June. The weakness was attributed to the slower demand in both the residential property market and automotive sector, and could further undermine print ad revenue. We believe the cover prices of the group’s newspapers and magazines are unlikely to be raised as management continues its drive to boost subscription. The last increase in 2008 was only its third in 23 years.
On the bright side, SPH saw a doubling of net income from investments to $23.7m and a 64.5% YoY jump in revenue from its exhibition business to $22.7m in 3QFY Aug11. Consequently, the group’s investible fund increased to $1.3b from $1.2b in the preceding quarter.
Action & Recommendation
We see the pursuit of new media businesses as the current focus of the group. Any drastic deployment of cash is unlikely in the near future as the search for a group chairman is underway. We trim our FY Aug11F-13F earnings by 6-7% to take into account higher operating costs for its mall operations and higher staff cost assumptions (print ad growth assumption: 5% FY Aug12F-13F). We also downgrade our rating on SPH to HOLD with the target price reduced from $4.60 to $4.32.
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