SPH

SPH ($4.19): 2QFY15 results missed expectations, dragged by media weakness and slightly mitigated by unexpected strength in its property segment. Net profit fell 14.4% y/y to $69.6m on 3% lower operating revenue. Interim dividend maintained at 7c.

Revenue for Media ($202.8m) declined 7.1% as revenue from advertisement and circulation fell, by 8.0% and 7.7% respectively. Advertisement traffic is experiencing both cyclical and structural weaknesses, as property sales is slow-moving and online advertising, particularly on social media, is posing a big threat. Monetization of its investments into online advertising would be crucial.

Revenue for Property ($60.6m) was a pleasant surprise, up 17.2%, with maiden contribution from The Seletar Mall (TSM) amounting to $8.1m. TSM, opened in late November 2014, is fully leased at average $11psf and contributed full-quarter earnings. Otherwise, Paragon and The Clementi Mall (TCM), both held under SPH REIT, also raked in higher revenue, though TCM recorded 8.8% negative rental reversion on 2% of its NLA due to “tenant fine-tuning”.

Operating costs were 10.2% lower, mostly the result of $7.7m lower materials, production and distribution costs in the Media segment, as well as the absence of one-off bonus of $10.4m and impairment charge of $9.9m. However, note that although average charge-out costs were reduced by more than 6.2% y/y, average monthly consumption shrank 13.3%.

Also propping up the bottom line are $19.2m investment income from the gain on sale of investments and $7.4m gain from development of regional online classified business with associates and JVs.

With little catalyst on the horizon and SPH’s core media business more likely to languish further, Maybank-KE maintains Hold with TP adjusted down to $4.06 (from $4.10) after cutting revenue forecasts for FY15E-17E by 2-3%. Decent 5% dividend yield should provide price support for the counter.

Recent broker ratings:
Maybank-KE rates Hold with TP of $4.06
JP Morgan rates Neutral with TP of $4.06
Credit Suisse rates Neutral with TP of $4.00
HSBC rates Hold with TP of $3.80
CIMB rates Reduce with TP of $3.95

Overall street recommendations: 0 Buy, 8 Holds, 6 Sells; consensus TP $3.91