Singapore Business Review

COMPANY FOCUS: Singapore Press Holdings economy,” say Nomura’s Lee.

FY13F/14F.”

Weaker ad environment Looking forward, SPH has little hope for N&M revenues rebounding in 2013 due to a soft growth outlook for Singapore. Most analysts predict the local economy to still expand, but at a subdued rate, which will translate to muted demand for print ad placements. “With the government’s expectation of a moderate GDP growth forecast of between 1-3% ahead, we lower our FY13 N&M advertisement revenue forecast by 2.7%,” says OSK-DMG’s Low. “On the back of a challenging domestic outlook ahead, we lower our FY13 PATMI by 7% on lower advertisement and other business revenue,” adds Low. “A weaker ad environment could hinder its print revenues,” concurs CIMB’s Ng. A combination of a “dismal” economic outlook and a slew of tightening measures for the property sector will likely result in lowered N&M revenues for the year. Both analysts believe enfeebled N&M revenues will cap FY13-15 earnings to within the low single-digit growth range of 3-6%. DBS analyst Andy Sim likewise sees SPH earnings growth to remain muffled in the face of a still-nascent economic recovery. “DBS expects GDP to grow by 1.6% and 3.2% for 2012 and 2013, respectively. With this, we expect print revenues to be weighed down by the muted economic outlook and expect 0%/2% ad revenue growth in

Timing hurts exhibition revenues The N&M segment is not the only business giving SPH revenue headaches. Exhibitions, which form the bulk of the other business segment, will also perform poorly in the FY13 due to a forward shift in revenues. “SPH’s other business segment revenue fell 34.3% yoy during the period to S$10.4m. This was mainly due to the timings of the exhibitions business of which certain shows were brought forward to 4QFY12. We have consequently lowered our FY13 revenue by 18% for this segment,” says OSK-DMG’s Low. 1QFY13 recurring revenues, for instance, has already been slightly slashed due to the difference in timing of the Comex exhibition this year, say CIMB’s Ng. Additional data from CIMB show that the removal of Sky@eleven profits from the first quarter recurring earnings as of 1QFY11 has led to a steady decline in recurring earnings and operating margin. The lower pretax profit posted during the 1QFY13 can also be blamed on the lower revenues from the exhibition business, say Nomura’s Lee. SPH also cannot count on circulation revenues to pick up the revenue slack. Circulation revenues declined 2.6% yoy to S$49m in 1QFY13, and there is little reason to believe that the downward trend will be reversed. “We believe that the persistent trend of falling circulation and

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advertisement revenues point to increasing uncertainties in SPH’s core newspapers and magazines business, and would put pressure on SPH’s overall operating margins over the mid to long term,” say OCBC’s Lee. Hopes pinned on property With N&M, exhibitions and circulation all showing revenue weakness, where then should SPH look to drive its growth? All eyes should be on property, according to analysts. “We expect rental income to offset the decline in ad revenues. Paragon, again, saw positive rental reversions while rates at Clementi Mall remained stable. Rentals from Clementi Mall are likely to stay flat this year as the first cycle of rental reversions should come in FY15,” say CIMB’s Ng. Rental and services, which accounted for 15% of 1QFY13 revenues and contributed S$24m in pretax profit for the same period, will continue to rise in importance for SPH, agrees DBS’s Sim. “We continue to see SPH growing rental income as a key buffer for the group’s softening advertising and circulation revenue. Property rental now accounts for 15% and 21.7% of the group’s revenue and PBT in 1Q, respectively, up from 14% and 19.7% a year ago. This should be further increased with the expected completion of Seletar Mall at the end of 2014. Fortunately, growth should be supported by stable contribution from its property rental income,” Sim adds.

1Q13 revenue breakdown

Decline in recurring earnings due to difference in timing of exhibition revenues