SPH

SPH: (S$3.67) Better-than-expected 1QFY16 profit belies unabating headwinds
SPH logged in stronger 1QFY15 results, which topped expectations as net profit jumped 17.3% y/y to $81.3m on a more than 6x surge in investment income to $10.3m with a large bulk of which coming from the sales of short term investments.

Revenue slipped 1.9% to $304.7m due mainly to an 8.7% decline in its media arm which was dragged by both its advertisement (-10.6%) and circulation (-5%) businesses.

The gap was partially filled by gains in its property (+16%) arm, which saw contributions from its new Seletar Mall, and supported by higher exhibitions and online classifieds sales, which helped boost revenue from other units (+20.2%).

Costs were generally lower with the exception of premises (+2.1%) and other operating expenses (+14.9%) crimping operating margins by 0.5ppt to 32.5%. The sharp jump in other operating expenses came from promotions and events as well as provision of doubtful debts.

Bottomline was aided by much reduced losses from its associates and JVs, in particular its regional online classified business, to $1.8m (-77.5%).

Looking forward, SPH’s media business is likely to languish in view of the gloomy economic outlook and an increasingly fragmented media landscape.

While its retail property assets in Paragon, Clementi Mall and Seletar Mall would provide a partial buffer, management’s double down on its media business could translate into a potentially disappointing growth profile should its online and mobile platforms and other digital initiatives fail to take off.

Valuations currently do not appear cheap even after a steep selldown recently, with 20.5x forward P/E and 1.6x P/B. However, this is supported by a dividend yield of 5.4% (FY15 DPS: 20¢) but this drops to 4.1% if the special dividend of 5¢ is cut.

Latest broker ratings:
CIMB maintains Reduce, cuts TP to $3.61 from $3.85
UOBKH maintains Hold, cuts TP to $3.85 from $4.10