SPH’s 1QFY8/14 results were in line with market expectations.

The property division will likely be its growth driver in the short term as the core media business continues to languish.

In our view, the risk is that SPH might have to cut its FY8/14E dividend if it does not raise payout ratio to above 100%. Maintain HOLD.

What’s New

SPH’s 1QFY8/14 results were in line with market expectations. Revenue grew 1.7% YoY but net profit fell 6.6% YoY, mainly due to the dilution effect from last year’s spin-off of SPH REIT. 1Q net profit of SGD88.8m accounted for 27.5% of our full-year forecast.

Given the modest outlook for Singapore’s GDP growth and our bearish view on the property market, we do not see any clear catalysts for its core media business in the short term.

What’s Our View

SPH’s media business continued to languish in 1QFY8/14 and we think a recovery is unlikely any time soon. Advertisement and circulation revenue declined by 2.8% and 4.7% YoY respectively. The property division was the only growth driver for the group. Paragon and The Clementi Mall remain fully occupied and their revenue contribution grew 5.4% YoY in the first quarter.

We only expect 1.1% core EPS growth (excluding revaluation gains on properties) for FY8/14E and 1.6% growth for FY8/15E. In our view, the key risk is that SPH might have to cut its FY8/14E dividend if it does not raise payout ratio to above 100%.

Maintain HOLD with the target price unchanged at SGD4.18

Source: Maybank Kim Eng Research - 15 Jan 2014