Results in line. SPH announced its FY8/12 results, which were broadly in line with market expectations. Top line registered a 1.8% yoy growth to SGD1.27b, driven by strong performance from the Property segment (+14% yoy) despite marginally decline from Newspaper & Magazine segment (-1% yoy). Core earnings increased by 0.3% yoy. Maintain BUY with target price of SGD4.50, based on SOTP valuation.

Expecting improved core ad business going forward. SPH’s core print advertisement revenue dropped by 1% yoy in FY12 due to weak economy condition. However the advertising demand for property, fashion and automobile sector remains strong. We expect ad revenue to bottom out in FY13 in line with recovery in Singapore economy.

Property segment to support future growth. SPH’s property segment will be the main growth engine for the whole group in our view. In FY12, rental income rose by SGD23.5m (+12.8%) to SGD191.4m. This was driven by higher rental rate in Paragon as well as contribution from full operation of Clementi Mall. As Clementi Mall has not achieved its maximum rental rate and demand in Orchard Road remains robust, we believe there is still upside from property rental income for FY13.

Operating margin sustained at a healthy 32%. Cost was well-managed in FY12, only marginally increased by 2.5% yoy, thanks to low newsprint cost and low interest rate. Operating profit margin remained above 30% level and we are confident that 30% OP margin is sustainable going forward.

Full year dividends 24cents, yield still attractive. Full year dividends of 24cents are the same as last year. We expect 25cents dividends for FY13 implying 6.2% dividends yield at current price of SGD4.07, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is now 443bps, above historical average of 350bps. We maintain our BUY call with target price of SGD4.50 based on SOTP valuation.

Valuation and recommendation

Buy, enjoy stable and attractive dividends while waiting for positive catalysts. We expect 25cents dividends for FY13 implying 6.2% dividends yield at current price of SGD4.07, which to us is still very attractive. The yield spread between SPH and 10-yr government bond is now 443bps, above historical average of 350bps. We recommend investors to keep invested in SPH, enjoy 6.2% dividends yield while waiting for more exciting news such as more dividends payout, acquisitions and spin-off stories. Our target price of SGD4.50 is derived from SOTP valuation method and more upside can be expected if spin-off of Paragon and Clementi eventuates. Downside should be protected by 6.2% dividend yield.

Source: Maybank Kim Eng Research - 15 Oct 2012