Still a Stalwart
Top strong, bottom weak. SPH reported its 2Q08 results yesterday with topline rising 19% YoY to S$301.8m, but net profit declined 6.3% YoY to S$99.6m. Lower than expected recognition from the Sky@Eleven project due to work delays and weaker investment income (-83.7% YoY) due to the volatile financial markets caused SPH to miss our net profit forecasts by about 9.5%. On an YTD basis, its bottomline performance was flattish at S$211.5m.
Top strong, bottom weak. SPH reported its 2Q08 results yesterday with topline rising 19% YoY to S$301.8m, but net profit declined 6.3% YoY to S$99.6m. Lower than expected recognition from the Sky@Eleven project due to work delays and weaker investment income (-83.7% YoY) due to the volatile financial markets caused SPH to miss our net profit forecasts by about 9.5%. On an YTD basis, its bottomline performance was flattish at S$211.5m.
Necessary costs to secure future. The need to remain relevant towards its increasingly online inclined readers is one of SPH’s priorities. About S$150m has been committed for investment into new media businesses over a 5-year period which we anticipate is currently loss making. Along with yearly annual increments, this expansion has caused staff costs to rise 12% YoY to S$159m at half time.
Singapore’s newspapers do better than US. While US print advertising sales is in continuous decline coupled with slowing online revenue growth, SPH continues to move in tandem with the growing Singapore economy. A poll of economists projected Singapore to grow around 5.6% in 2008 despite the US slow down. We expect SPH to ride its advantageous monopolistic position in Singapore to turn in consistent net profits. We believe SPH’s largely local operations will continue to be relatively insulated from the slowing economies in the west.
Paragon still doing well. Paragon continues to attract top luxury brands and management indicated that renewals typically yield rent increments of 5-9%. Paragon’s makeover with 2 new floors for medical suites/offices and increased commercial NLA by 11,600 sqft will be finished in Oct 08 and should act as a strong pylon to support SPH’s income.
Still a stalwart in shaky markets. Despite mitigating our expectations on investment returns, we believe that SPH’s core business will continue to match Singapore’s economy growth pace and are mindful that bottomline will be supported by recognition from its Sky@Eleven project. Assuming a similar payout ratio as previous years, we estimate that the stock’s dividend yield could be 5.7% in FY08, making SPH an attractive defensive play for a shaky market. Using SOTP, we raise our fair value slightly to S$5.15 (vs. S$5.14) as SPH pays down its debt for paragon. Maintain BUY.
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1 comment:
Great post
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