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1、,4.50,4.09,15.9,5.9,regulations,Company report,Telecoms,Media&TechnologyMediaEquity Singapore,abcGlobal Research,OverweightTarget price(SGD)Share price(SGD)Forecast dividend yield(%)Potential return(%)Note:Potential return equals the percentagedifference between the current share price andthe target
2、 price,plus the forecast dividend yieldAug 2011 a 2012 e 2013 e,Singapore Press Holdings(SPH SP)Initiate OW:Media and property:it takes two to tango Liquid,defensive ASEAN play helped by solid mediadominance and a growing retail property portfolio,HSBC EPSHSBC PEPerformanceAbsolute(%)Relative(%),0.2
3、417.01M3.00.8,0.2417.23M4.30.0,0.2516.412M12.5-7.4,Expect to pick up a sustainable 6%dividend yield at 16xFY13e PE,which compares well with regional peers Initiate coverage with Overweight and a target of SGD4.50,9 October 2012Rajesh Raman*AnalystThe Hongkong and Shanghai BankingCorporation Limited,
4、Singapore Branch+65 6658.sgLuis Hilado*AnalystThe Hongkong and Shanghai BankingCorporation Limited,Singapore Branch+65 6658.sgTucker Grinnan*Regional Head of Telecoms ResearchThe Hongkong and Shanghai BankingCorporation Limited+852 2822.hkView HSBC Global Research at:http:/*Employed by a non-US affi
5、liate ofHSBC Securities(USA)Inc,and is not,Print media monopoly with a defensive top line.Critics may argue that print media isdead,but SPH is distinctive in that it is perhaps the only media conglomerate in the worldwith a virtual domestic market print monopoly.It publishes 18 of Singapores 19 news
6、papersand has a 90%-plus share of print media ad spend and c50%share of total advertising spend,creating the necessary defensiveness in an ex-growth industry.Property business provides diversification.It may not seem like a strategically soundmove for a media shop to venture into the property busine
7、ss,but doing so has enabled SPHto diversify its revenue base,create long-term value,and support payouts.Rental revenuegrew at a 13%CAGR during 2008-11,and we forecast it will contribute c15%of FY12revenue.Property contributes cSGD3bn,accounting for c35%of our valuation.Stable 6%dividend yield with 1
8、6x FY13e PE.We expect a 4%revenue CAGR duringFY12-15e and are 1-2%ahead of consensus.Our assumptions of stable operating marginand sustainable free cash flows lead to a c5%FY12-15e earnings CAGR.We are 2-5%above consensus on profits and dividends for FY13-14e and 10%ahead of the mean targetprice.SPH
9、 also fares well on relative valuations,with a 16x FY13e PE and 6%dividendyield versus 18x/4%for regional media peers and 19x/6%for property peers.SPH is ablue-chip stock with a c2%contribution to the benchmark and 100%free float.,registered/qualified pursuant to FINRAInitiate OW;shares are misprice
10、d.We value SPH using a DCF-based methodology for,Issuer ofreport:,The Hongkong and ShanghaiBanking Corporation Limited,Singapore Branch,the media business and NAV discount for property to derive our target of SGD4.50,whichimplies a c16%potential return.We apply a 10%conglomerate discount to our valu
11、ation,MICA(P)038/04/2012MICA(P)063/04/2012MICA(P)206/01/2012Disclaimer&,based on a five-year mid-cycle average.The media division trades at a PE of 12x,in linewith its global print peers,but we believe it warrants a re-rating given its monopoly status.Key risks are print media industry deregulation,
12、weak macro,irrational investments,lowerpayout,and inadequate voting rights due to a golden share control mechanism.,DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,IndexIndex levelRICBloomb
13、ergSource:HSBC,Straits Times Index3,077SPRM.SISPH SP,Enterprise value(SGDm)Free float(%)Market cap(USDm)Market cap(SGDm)Source:HSBC,6,6011005,3686,596,6,0,3,3,Singapore Press Holdings(SPH SP)Media9 October 2012Financials&valuationFinancial statements,Key forecast drivers,abc,Year to,08/2011a,08/2012
14、e,08/2013e,08/2014e,Year to,08/2011a,08/2012e,08/2013e,08/2014e,Profit&loss summary(SGDm),Print ads revenue growth(%),RevenueEBITDADepreciation&amortisationOperating profit/EBITNet interest,1,251531-82449-32,1,284540-85455-23,1,337564-88476-29,1,383583-85498-28,Blended circulation yield(SGDRental In
15、come growth(%)Staff cost/employee(SGD)Average newsprint charge(USD)Capex/sales(%),12685,4896755,11587,96868229,11090,5197027,1892,9817167,PBT,457,460,475,498,HSBC PBTTaxation,457-73,460-74,475-76,498-82,Valuation data,Net profitHSBC net profit,389389,384384,401401,418418,Year to,08/2011a,08/2012e,08
16、/2013e,08/2014e,Cash flow summary(SGDm),EV/salesEV/EBITDA,5.111.9,5.112.2,4.911.7,4.811.3,Cash flow from operationsCapexCash flow from investmentDividendsChange in net debt,450-68176-434-250,422-374-374-386253,442-92-92-368-32,458-95-95-383-26,EV/ICPE*PBFCF yield(%)Dividend yield(%),2.417.02.98.35.9
17、,2.317.22.91.15.6,2.216.42.96.35.9,2.215.82.96.56.1,FCF equity,466,60,359,372,*Based on HSBC EPS(diluted),Balance sheet summary(SGDm),Intangible fixed assets,84,76,69,63,Price relative,Tangible fixed assetsCurrent assetsCash&othersTotal assetsOperating liabilitiesGross debtNet debtShareholders funds
18、Invested capital,2,1531,2093933,8894211,1127192,2322,633,2,4491,1082774,0504271,2499722,2482,930,2,4601,1202714,0374361,2119402,2662,942,2,4771,1352724,0354451,1869142,2832,959,5.554.543.53,5.554.543.53,2010,2011,2012,2013,Ratio,growth and per share analysis,Singapore Press Holding,Rel to STRAITS TI
19、MES INDEX,Year to,08/2011a,08/2012e,08/2013e,08/2014e,Source:HSBC,Y-o-y%change,RevenueEBITDAOperating profitPBTHSBC EPS,-9.4-17.2-21.3-22.6-22.1,2.61.61.40.8-0.8,4.14.44.53.24.4,3.53.44.84.94.3,Note:Priced at close of 4 October 2012,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating profit marg
20、inEBITDA/net interest(x)Net debt/equityNet debt/EBITDA(x)CF from operations/net debt,0.413.717.410.342.535.916.731.21.462.6,0.513.917.110.442.035.423.041.81.843.4,0.513.817.810.642.235.619.740.21.747.0,0.514.318.411.042.136.020.938.81.650.1,Per share data(SGD),EPS reported(diluted)HSBC EPS(diluted)D
21、PSBook value,0.240.240.241.39,0.240.240.231.41,0.250.250.241.42,0.260.260.251.43,2,Singapore Press Holdings(SPH SP)Media9 October 2012Investment summary SPH is a leading media conglomerate based in Singapore andone of the most liquid stocks in the ASEAN region It offers a healthy mix of media domina
22、nce(65%of valuation)supported by a growing property portfolio(35%of valuation)Valuations appear reasonable;we expect a sustainable 6%dividend yield at 16x PE in FY13e,abc,In this report,we address the following issues forSingapore Press Holdings(SPH)Refuting the bearsOne concern that has been common
23、ly voicedabout SPH is that“print is dead”.While printpublishers elsewhere in the world,notably the US,have seen their revenue steadily decline,we arguethere is a strong case for valuing SPH differently.While we would agree Singapore is comparable tomany developed markets in terms of per capitaincome
24、,literacy levels,and mobile penetration,we think SPH is different from other printpublishers for three fundamental reasons:SPHs pricing power remains strong and hasnot been diluted by disintermediation,in ourview.In general,the print business globallyhas seen ad revenue decline due to shrinkingcircu
25、lation volumes and lower ad rates.However,SPHs circulation volumes aremuch more defensive compared with those ofits Western peers,and it retains strong controlover ad rates because it is essentially amonopoly.This can be seen from the chart,Media revenue for SPH have been defensive and even grown in
26、 the past few years while it has shrunk in the United States:-46%in the past five years20%10%0%-10%-20%-30%,2003,2004,2005,2006,2007,2008,2009,2010,2011,United States print+online rev enue grow th(%),SPH media rev enue grow th(%),Source:Newspapers Association of America,company data,HSBC3,Singapore
27、Press Holdings(SPH SP)Media9 October 2012below;newspaper revenue fell 6%in 2010and c46%since 2006 in the US,but grew by13%/6%in 2010-11a and 17%since 2006 forin SPH.Moreover,SPH has a profit margin of25-30%versus just 5-10%its Western peers.Even though SPH already has a strongpresence in all key onl
28、ine segments,onlineadvertising is growing fast off a relativelysmall base and undercuts the print medium.We estimate that online advertising stillcaptures only 7%of the total ad spend inSingapore,compared with almost 25-30%ofad spend in Western markets.Sectors of strategic importance in Singapore in
29、cluding media and telcos are directly/indirectly owned by the Singaporegovernment.Admittedly,there is always therisk of sector deregulation,but we see this aslimited for SPH in the medium term.A monopoly businessDefensive top lineSPH is distinctive in that it is perhaps the onlymedia conglomerate in
30、 Asia with a virtualmonopoly in print publishing in its domesticmarket.It publishes 18 out of the 19 availablenewspapers in Singapore and has a more than90%share of print media ad spend and c50%share of the total net advertising spend.This givesthe company the necessary defensiveness it needsin an e
31、x-growth industry.We estimate that the Singapore advertising marketwas worth in the ballpark of SGD2.4bn in 2011on a gross published rates basis,or c0.8%ofnominal GDP,and cSGD1.3b on a net basis.Ourbottom-up forecasts for the media businesssuggest a 1%decline in FY12e followed by a c2%growth in FY13
32、-14e.Based on our analysis,thecorrelation between the media and the economy inSingapore used to be much higher at c1.3xhistorically,but with the increased diversification4,of the Singapore economy and more mediadistribution options available,we estimate that thecorrelation is at c70%or 0.7x GDP mult
33、iplier.We expect SPHs strengthening property portfoliowith an emphasis on retail to serve as a bulwark toachieve top-line growth,contributing c15%toFY12e revenue.Rental income has grown at a 13%CAGR in the last three years.We expect an 11%CAGR in property revenue and 13%CAGR inother businesses(albei
34、t off a smaller base i.e.c7%of group revenue in FY12e)going forward.Despitethe 2008-11 crisis,the top line(ex-propertydevelopment)grew at a respectable 2.5%CAGR.We therefore expect the overall top line to be wellprotected given SPHs viable growth drivers andvirtual monopoly,which should help the top
35、 linegrow at a 4%CAGR in FY12-15e.Retail property adds valueDiversifies revenue,secures payoutA media shop diversifying into property may notseem like a strategically sound move at firstglance,but the recurring stream of rental incomehas enabled SPH to maintain a steady dividendpayout.SPH is focused
36、 on building a strong retailproperty portfolio,which is good from both arevenue diversification and long-term valuecreation standpoint.Property rentals grew at a13%CAGR during 2008-11 and contributedc15%to FY12e revenue,with a possible assetspin-off in the future based on our understandingof Street
37、and market expectations(see Reuters,19 June 2012 on this issue).Given the recent success of REIT listings inSingapore,such as Ascendas Hospitality Trust(ASHP SP,OW)in the Singapore market,wewould not be surprised if SPH takes a cue fromseveral existing SREIT listings and carries out afull or a parti
38、al spin-off its property assets into aREIT structure.Our valuation of its propertybusiness at SGD3bn represents 35%of our overall,abc,Singapore Press Holdings(SPH SP)Media9 October 2012valuation of the group post minorities adjustments.Our valuation of the property assets is 5%belowmanagements estim
39、ate based on the latestvaluation exercise it conducted in August 2012.Inour view,SPH may be waiting for the divisionsasset base to increase in size,which would make aspin-off more commercially viable.We furthernote that SPH already has a decent-sized propertyportfolio compared with retail real estat
40、e peerssuch as Frasers Centerpoint Trust.We think thatthe advantages of spinning off the business into aREIT structure are as follows:Lower conglomerate discount.It would likelyreduce the conglomerate discount of 10%thatwe are now using,as the current managementteam is engaged in two diverse busines
41、ses,butthe spin-off would increase the business focuson each and improve stock visibility.More efficient tax structure leading toupside in dividend per share.REITs arecorporate entities which invest and largelyhold portfolios of office,retail,residential,hospitality,industrial and commercial realest
42、ate.They also qualify for certain taxbenefits if they distribute in excess of 90%oftheir net income as dividends to investors,encouraging higher dividend payouts.Margins to remain stableNewsprint and staff are key costsThere are two key cost items for SPH that causevolatility in margins:newsprint co
43、sts and staffcosts.SPHs newsprint charge-out prices typicallylag spot prices by about six months as this is howmuch inventory it normally stocks.Asiasnewsprint prices typically lag those of NorthAmerica.Newsprint prices are impacted byvarious global macro factors,such as rising crudeprices impacting
44、 freight rates,availability ofwastepaper for newsprint production,naturaldisasters,and global demand and supply,mismatches.Newsprint costs saw a huge spikelargely due to crude oil prices,which rose in 2008but soon corrected during the subsequent globaleconomic crisis.Our newsprint costs forecastssug
45、gest that average monthly consumption willgrow c1%per year during FY13-14e,while weexpect average newsprint charge-out prices togrow 2-3%y-o-y.We estimate that every 5%risein newsprint costs lowers our FY12-13e profitforecast by 1%to 2%.Staff costs comprise c42%of opex and representthe largest chunk
46、 of costs.Staff costs have risenpartly as a result of additional headcount due toacquisitions,and partly due to salary increments,government job credits and variances in bonuspool payouts,which are related to annualprofitability benchmarks.We expect year-endheadcount to be flat going forward while w
47、eexpect staff cost/employee to step up annually inline with inflation.We expect staff cost toconstitute 42%and 43%of opex in FY13e andFY14e,respectively.We expect every 5%rise instaff costs will impact our FY12-13e profits by 3%and 4%,respectively.Our operating marginforecasts are expected to be sta
48、ble at c35-36%forFY13-14e and we are ahead of consensus by 3-5%on our operating profit estimates.Dividends are sustainableFY13e dividend yield at 6%Under our base-case capex to sales forecasts andcompany dividend payout levels of around c85-90%of recurring earnings,we expect the groups gearingto rem
49、ain stable at c40%net debt to equity forFY12-13e.The company does not have a stateddividend policy but has a historical track record ofpaying a high percentage of its recurring earningsranging from 86-96%in the last 5 years(defined asoperating profit less interest paid)as dividends.We expect recurri
50、ng profits(defined by SPH asrecurring earnings of media and property,abc5,Singapore Press Holdings(SPH SP)Media9 October 2012Our rationale for using a 10%conglomerate discount for SPH,abc,MediaPAT*,Media,Invest-Property*ments,EV,Net Implieddebt market value _ Market cap(SGDm)_ Premium/discount _,Yea
