Pressure in ad revenues likely to continue
[6/14/12] - OCBC Research expects Singapore Press Holdings’ (SPH) retail business to provide a stable counterweight to its core print business.
Its print business is expected to face pressure from dipping ad demand.
The retail business, comprising of the Paragon and the Clementi Mall, contributed S$47.9 mln of profits before tax (PBT) in H1 FY12, making up a respectable 22% of total PBT.
Given the limited retail pipeline in the Orchard area over FY12-FY13, the analyst expects rentals at the Paragon to stay relatively resilient.
In addition, it expects the strategic location of the Clementi Mall, now fully leased, at Clementi MRT station and strong foot traffic of 60,000 daily to underpin rental levels.
Going forward, SPH’s retail landlord business is set to grow with the expected completion of the Sengkang commercial development by 2016.
The tender was won in January 2012 for S$328 mln. The 99-year Sengkang site is expected to yield a retail mall with 284,000 sq ft gross floor area (GFA).
This would add another suburban mall similar to the size of Clementi Mall into SPH’s retail portfolio.
OCBC Research also believes that SPH’s 70:30 partnership with UEL would create considerable synergy between UEL’s property development experience and SPH’s mall management capabilities.
Moreover, with group investible funds at S$0.9 bln as of end March 2012, the house believes there is sufficient capacity for SPH to allocate additional capital into its retail strategy ahead.
For the current fiscal year, however, it expects to see sustained downward pressure on SPH’s core print advertisement and circulation business as demand softens in an increasingly uncertain macro environment.
In H1 FY12, it saw newspaper ad revenue dip 2.3%, driven mostly by falling classified ad demand which fell 6.5%.
On the other hand, newsprint costs are expected to stay relatively stable ahead and it believes SPH has some flexibility in managing staff costs should the top-line weaken further.
OCBC Research has maintained its BUY call with an unchanged fair value estimate of S$4.05.
Investor Central. We ask the questions that need to be asked:
1. SPH’s property business is definitely set to grow but this is offset by declining print revenue. But property revenue contributes just 15% to total revenues as against 79% contribution by print segment. So, is SPH targeting equal contribution from property business in future?
2. The group has investible funds at S$0.9 bln. So how does SPH plan to utilize these funds?
Publish date: 14/06/12