DBS Equity Research: Wired Daily 16 Oct 2014

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DBS Equity Research: Wired Daily 16 Oct 2014

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Publish date: Thu, 16 Oct 2014, 11:52 AM

SPH (Hold, TP: $4.01) - FY DPS 21cts, top/bottom line remains lack lustre but 5% yield underpins stock price

Valuetronics - TP lowered to $0.41, Maintain Buy

Vard Holdings - Downgrade to Fully Value, TP $0.65 post profit warning

SPH group revenue dropped 4% to S$298m with core newspaper and magazines operations still weak as ad revenues dropped by 10% y-o-y in 4Q14. Operating profit declined by a smaller 2% to S$89m as the increase in operating costs was lower. A final and special DPS of 14Scts was proposed, bring full year DPS to 21 Scts, only slightly below our expectations of 22 Scts. Going forward, our analyst projects SPH's ad revenues and earnings to remain lacklustre, given the uncertain macroeconomic environment. We trimmed FY15F earnings by 3.8% on lower ad revenue growth. SPH's share price should be supported by its strong balance sheet and c.5% yield. We have pencilled in FY15F DPS of 21 Scts, similar to FY14. Our target price is revised to S$4.01, based on sum-of-parts valuation. Maintain Hold.

Our analyst says Valuatronics customer's restructuring will take time and the form of the separated entity is still unknown. Lighting accounts for c.25% of group profits. A total loss of this business would cause overall profits to decline but Valuetroncis is unlikely to sink into losses or see a sharp earnings decline because Industrials, which accounts for c.60% of earnings, continues to grow with more accounts in the pipeline. The remaining 15% of earnings is from the relatively stable PCBA business. Moreover, Valuetronics is always cultivating new customers, which should help to partly offset any potential decline in lighting business. Assuming a worst case scenario, we have cut FY15F earnings by 20% to err on the side of conservatism. If lighting incurs losses, TP would be S$0.41, pegging P/BV to its historical mean multiple of 1.14x, with 6.6% dividend yield. Maintain Buy

Our analyst downgrades Vard Holdings to Fully Valued (from Buy) and lower TP to $0.65 (from $1.10) pegged to 8x FY15 earnings (-1 S.D. of mean) post the company's negative profit guidance for 3QFY14. The impact to profitability in 3Q14 is significantly higher than previous quarters and reverses the trend of improving EBITDA seen over the last couple of quarters, which we had earlier expected to continue into FY15. Factoring in the lower profitability, we cut our FY14/15F core earnings estimates by 54% and 34% respectively. Lacking sufficient catalysts in the face of low oil prices and weak North Sea vessel demand, we thus downgrade the stock and lower the TP.

The sell-down in US stocks continued as volatility affected both the bond and equity markets. Weak economic data and reports of a 2nd Ebola case in US added to the uncertainties. US retail sales dropped more than forecast in September, decreasing 0.3% (consensus -0.1%).The 10 year treasury yield dipped below 2% before recovering slightly above it. The Dow fell more than 400pts intra-day before recovering more than ½ of the losses after Janet Yellen voiced confidence in the durability of the U.S. economic expansion in the face of slowing global growth and turbulent financial markets.

Source: DBS

SPH (T39)Valuetronics (BN2)

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