Singapore Company Guide Edition 1 Version 1 Bloomberg: SP Reuters: SPRM.SI Refer to important disclosures at the end of this report BS Group Research. Equity 10 Jul 2015 HOLD Last Traded Price: S$4.05 (STI : 3,267.40) Price Target : S$3.98 (-2% downside) Potential Catalyst: HIgher dividends, M&A Where we differ: In line Analyst Alfie YEO +65 6682 3717 alfieyeo@dbs.com Andy SIM CFA +65 6682 3718 andysim@dbs.com SOFT OUTLOOK Maintain HOLD, unexciting outlook for print ads, yet stock is supported by c.5% dividend yield. We are neutral on as we believe print ad growth will be soft on the back of tepid GDP growth and consumption spending. We believe this presents fundamental risks to earnings growth and upward resistance to the stock. Yet the stock is supported by a strong DPS payout of 21 Scts and c.5% dividend yield that limit its downside. Our view on the stock is neutral and hence a HOLD. Price Relative S$ 4.7 4.5 4.3 Relative Index 208 188 2Q15 results in line. Core earnings were within expectations, but headline earnings were ahead, boosted by S$24m investment gains. Revenue declined by 1% to S$307m while operating profit improved 1% to S$112.4m, driven by lower material, staff and depreciation expenses. 4.1 3.9 3.7 3.5 3.3 3.1 2.9 88 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 (LHS) Relative STI INDEX (RHS) Forecasts and Valuation FY Aug (S$ m) 2014A 2015F 2016F 2017F Revenue 1,215 1,238 1,263 1,276 EBITDA 408 445 446 444 Pre-tax Profit 528 396 400 401 Net Profit 404 297 297 297 Net Pft (Pre Ex.) 242 297 297 297 EPS (S cts) 25.3 18.5 18.5 18.6 EPS Pre Ex. (S cts) 15.1 18.5 18.5 18.6 EPS Gth (%) (6) (27) 0 0 EPS Gth Pre Ex (%) (24) 22 0 0 Diluted EPS (S cts) 24.6 18.1 18.1 18.1 Net DPS (S cts) 21.0 21.0 21.0 21.0 BV Per Share (S cts) 230.5 228.0 225.5 223.1 PE (X) 16.0 21.8 21.8 21.8 PE Pre Ex. (X) 26.7 21.8 21.8 21.8 P/Cash Flow (X) 17.5 16.6 16.2 16.3 EV/EBITDA (X) 18.5 17.0 17.0 17.1 Net Div Yield (%) 5.2 5.2 5.2 5.2 P/Book Value (X) 1.8 1.8 1.8 1.8 Net Debt/Equity (X) 0.1 0.1 0.1 0.1 ROAE (%) 11.2 8.1 8.2 8.3 Earnings Rev (%): - - - Consensus EPS (S cts): 18.4 18.8 19.5 Other Broker Recs: B: 0 S: 6 H: 8 Source of all data: Company, DBS Bank, Bloomberg Finance L.P 168 148 128 108 Print ad spend has registered negative y-o-y growth since 2014. Since February 2014, ad spend has been declining at rates of between flat and -13% y-o-y. We attribute this to sluggish GDP growth in Singapore and muted consumer spending. Going forward, our economics desk is expecting Singapore to enter its slowest GDP growth in six years for 2015 at 2.4%. Valuation: TP of S$3.98 based on sum of parts. Our target price of S$3.98 is based on sum-of-parts valuation. We value 's core newspaper and magazine operations at S$1.86/share based on discounted cash flow model. s 70% stake in REIT is valued based on our target price of S$1.03. These two parts are added to the estimated value of Seletar Mall, net cash and investments to derive our TP. Key Risks to Our View: Uncertainty in macroeconomic environment. s advertising revenue is contingent on economic sentiment, and a turn for the worse could further impact core advertising revenue. Key indicators include the general state of economy including GDP, inflation and consumption spending. These will ultimately impact advertising spend and earnings. At A Glance Issued Capital (m shrs) 1,599 Mkt. Cap (S$m/US$m) 6,476 / 4,797 Major Shareholders Free Float (%) 100.0 3m Avg. Daily Val (US$m) 10.1 ICB Industry : Consumer Services / Media www.dbsvickers.com ed: TH / sa: JC
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Publication model is driven by ad spend. s business model is driven by advertising revenue rather than circulation, with advertising receipts accounting for 76% (24% circulation and others) of operating profits in FY14. also has a property business which developed and owns Seletar Mall, and 70% shareholding in REIT (Paragon and Clementi Malls). We estimate rental income from the three malls to contribute to 18% of revenue for FY15F. used to own Paragon and Clementi malls. But it has since spun off the properties to REIT in exchange for a 70% stake in REIT. Muted outlook for Singapore adex. A combination of sluggish consumer sentiment, poor GDP growth and subdued use of internet advertising in recent years has caused advertising expenditure to plummet. According to our economics desk, Singapore is entering its slowest growth in six years for 2015 (at 2.4%). Uncertainties in the global economy and domestic restructuring continue to weigh on growth. The labour crunch has further compounded the problem, limiting companies ability to grow. Loan growth has also dipped into the red -0.1% y-o-y in May, a first decline since October 2010. We believe these signs are pointing towards downward pressure on growth, inflation, consumer spending and ultimately advertising. Rising US dollar. Our FX desk sees US dollar rising to 1.40 against the SGD in 2016. Purchases of primary raw materials for newsprint such as pulp, are denominated in US dollars. Yet publication sales are domestic and denominated in SGD. A rising US dollar presents risks that leads to higher costs and lower margins as selling prices are maintained. On the back of an appreciating US dollar against SGD, we are anticipating gross margins to decline from 2015 through 2017. Mixed outlook for property. As of 2Q15, occupancy for Paragon and Clementi malls remained robust at 100%, with average occupancy uplift of 10.4%. Paragon remains the more robust of s properties, delivering a strong +11.6% higher rents for new and renewed leases. Clementi Mall suffered a rental reversion dip of 8.8% but that was only for 2% of total NLA and likely due to fine-tuning of tenancies at selected parts of the mall. This strategy will enable the REIT to reap better tenant synergies to improve traffic going forward. Income visibility is strong for the malls with only 5.1% of the REIT s 2015 gross income left to be renewed in 2015, which suggests strong income visibility. -7.45 553 415 277 138 0 1.43 1.14 0.86 0.57 0.29 0.00 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Adex growth rate (%) 0 0-0.68-1.59-6.77 Newprint (US$/mt) 678 622 607 590 610 Avg USD/SGD 1.4 1.26 1.25 1.24 1.27 Avg Staff # 4,228 4,349 4,204 4,214 4,224 Singapore Adex Total yoy growth (%) Total yoy growth (%) Page 2 Source: Company, Nielsen, DBS Bank
Balance Sheet: Share price is supported by strong cash hoard. s business is cash generative, with working capital financed by longer payment periods to creditors for operations. Due to its operating model, the business has amassed a cash hoard of over S$1bn including long-term investments. Even though balance sheet has net debt, returns generated by excess cash used for investments has enabled it to offset interest costs. The strong cash management has led to an attractive dividend payout of over 80%. We are expecting a full-year DPS of 21 Scts, similar to FY14's. Share Price Drivers: We believe spinning off Seletar Mall into REIT would be a share price catalyst. Since 2014, has securitised its stake in Paragon and Clementi Malls into REIT. However, its new Seletar Mall remains on its balance sheet, with room for REIT to acquire a stake in Seletar. We currently value Seletar Mall at S$345m gross development value. Recovery in adex. s earnings is primarily driven by adex spend. Recovery in general economy and ultimately adex spend would accelerate topline and earnings growth. However, we do not see a near-term recovery as consumption and GDP outlook remains weak for now. Leverage & Asset Turnover (x) 0.60 0.50 0.40 0.30 0.20 0.10 0.00 Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure S$m 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Capital Expenditure (-) 25.0% 20.0% ROE (%) 0.4 0.4 0.3 0.3 0.2 0.2 0.1 Higher dividend payout. The stock already yields a c.5% dividend rate, and its business model is generally cash generating. With more cash generated over time, we do not discount any possible increases in dividend payout. Should the board declare a higher dividend payout, it will improve the dividend yield on the stock, which will in turn support a higher stock price. Key Risks: Uncertainty in macroeconomic environment. 's advertising revenue is contingent on economic sentiment, and a turn for the worse could further impact core advertising revenue. Key indicators include the general state of economy including GDP, inflation and consumption spending. These will ultimately impact advertising spend and earnings. 15.0% 10.0% 5.0% 0.0% Forward PE Band (x) (x) 26.6 +2sd: 25.1x 21.6 +1sd: 20.7x 16.6 Avg: 16.3x 11.6 6.6 1sd: 11.9x 2sd: 7.4x Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 COMPANY BACKGROUND Singapore Press Holdings Limited publishes, prints, and distributes newspapers and magazines with a dominant market position in Singapore. It also invests in properties, provides multimedia, broadcasting and event management services, and operates internet portals. It has a 70% stake in REIT. (x) 2.9 2.7 2.5 2.3 2.1 1.9 1.7 PB Band (x) +2sd: 2.7x +1sd: 2.4x Avg: 2.09x 1sd: 1.78x 1.5 2sd: 1.47x 1.3 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Source: Company, DBS Bank Page 3
Key Assumptions Adex growth rate (%) (1.59) (6.77) 0.00 0.00 0.00 Newprint (US$/mt) 622 607 590 610 610 Avg USD/SGD 1.25 1.24 1.27 1.40 1.40 Avg Staff # 4,349 4,204 4,214 4,224 4,234 N/A N/A N/A N/A N/A Segmental Breakdown Revenues (S$ m) Newspaper ops 1,041 1,010 1,016 1,023 1,032 Rental 198 205 222 240 243 Property devt. 0 0 0 0 0 Others N/A N/A N/A N/A N/A Total 1,239 1,215 1,238 1,263 1,276 EBIT (S$ m) Newspaper ops 242 220 230 222 220 Rental 141 148 151 163 166 Property devt. 0 0 0 0 0 Others 18 16 18 18 18 Total 401 384 399 403 404 EBIT Margins (%) Newspaper ops 23.2 21.8 22.6 21.7 21.4 Rental 71.2 72.2 68.0 68.0 68.0 Property devt. N/A N/A N/A N/A N/A Others N/A N/A N/A N/A N/A Total 32.4 31.6 32.2 31.9 31.7 Income Statement (S$ m) Revenue 1,239 1,215 1,238 1,263 1,276 Cost of Goods Sold (679) (693) (700) (718) (726) Gross Profit 560 522 538 545 549 Other Opng (Exp)/Inc (159) (138) (139) (142) (145) Operating Profit 401 384 399 403 404 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc (6) (31) (8) (8) (8) Net Interest (Exp)/Inc (18) 13 5 5 5 Exceptional Gain/(Loss) 111 162 0 0 0 Pre-tax Profit 489 528 396 400 401 Tax (55) (58) (60) (61) (61) Minority Interest (3) (66) (39) (42) (43) Preference Dividend 0 0 0 0 0 Net Profit 431 404 297 297 297 Net Profit before Except. 320 242 297 297 297 EBITDA 454 408 445 446 444 Growth Revenue Gth (%) (2.6) (2.0) 1.9 2.0 1.0 EBITDA Gth (%) (14.4) (10.2) 9.1 0.2 (0.3) Opg Profit Gth (%) (11.5) (4.3) 3.9 1.0 0.3 Net Profit Gth (Pre-ex) (%) (15.0) (24.2) 22.4 0.0 0.1 Margins & Ratio Gross Margins (%) 45.2 43.0 43.5 43.2 43.1 Opg Profit Margin (%) 32.4 31.6 32.2 31.9 31.7 Net Profit Margin (%) 34.8 33.3 24.0 23.5 23.3 ROAE (%) 14.9 11.2 8.1 8.2 8.3 ROA (%) 8.3 6.2 4.5 4.5 4.5 ROCE (%) 7.3 5.6 5.4 5.4 5.4 Div Payout Ratio (%) 148.4 83.1 113.3 113.3 113.1 Net Interest Cover (x) 22.3 NM NM NM NM Source: Company, DBS Bank Page 4
Quarterly / Interim Income Statement (S$ m) FY Aug 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 310 298 307 270 307 Cost of Goods Sold (172) (171) (168) (163) (166) Gross Profit 138 127 139 107 140 Other Oper. (Exp)/Inc (31) (38) (28) (29) (28) Operating Profit 107 89 111 78 112 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc (8) (17) (8) 5 (4) Net Interest (Exp)/Inc 16 15 (7) 9 17 Exceptional Gain/(Loss) 0 109 0 0 0 Pre-tax Profit 115 196 96 92 125 Tax (17) (12) (18) (13) (18) Minority Interest (9) (40) (9) (10) (10) Net Profit 90 145 69 70 98 Net profit bef Except. 90 35 69 70 98 EBITDA 113 85 116 96 121 Growth Revenue Gth (%) 11.1 (3.7) 3.0 (12.0) 13.5 EBITDA Gth (%) 53.7 (24.2) 36.4 (17.7) 26.1 Opg Profit Gth (%) 72.6 (17.0) 25.1 (29.9) 44.0 Net Profit Gth (Pre-ex) (%) 215.2 (60.4) 95.6 0.3 41.2 Margins Gross Margins (%) 44.6 42.6 45.3 39.7 45.8 Opg Profit Margins (%) 34.6 29.8 36.2 28.9 36.6 Net Profit Margins (%) 28.9 48.5 22.6 25.7 32.0 Balance Sheet (S$ m) Net Fixed Assets 332 286 262 241 223 Invts in Associates & JVs 62 85 87 89 91 Other LT Assets 4,329 4,641 4,641 4,641 4,641 Cash & ST Invts 1,447 1,471 1,485 1,509 1,531 Inventory 24 24 25 25 26 Debtors 148 144 155 158 159 Other Current Assets 32 1 1 1 1 Total Assets 6,373 6,651 6,654 6,664 6,671 ST Debt 3 926 926 926 926 Creditor 269 298 302 308 311 Other Current Liab 71 61 61 62 62 LT Debt 1,738 879 879 879 879 Other LT Liabilities 77 91 91 91 91 Shareholder s Equity 3,536 3,687 3,648 3,608 3,569 Minority Interests 679 709 748 790 833 Total Cap. & Liab. 6,373 6,651 6,654 6,664 6,671 Non-Cash Wkg. Capital (137) (190) (182) (186) (187) Net Cash/(Debt) (294) (335) (321) (296) (275) Debtors Turn (avg days) 48.9 43.9 44.1 45.2 45.4 Creditors Turn (avg days) 160.9 162.0 169.5 166.9 166.7 Inventory Turn (avg days) 15.0 13.7 13.8 13.7 13.7 Asset Turnover (x) 0.2 0.2 0.2 0.2 0.2 Current Ratio (x) 4.8 1.3 1.3 1.3 1.3 Quick Ratio (x) 4.7 1.3 1.3 1.3 1.3 Net Debt/Equity (X) 0.1 0.1 0.1 0.1 0.1 Net Debt/Equity ex MI (X) 0.1 0.1 0.1 0.1 0.1 Capex to Debt (%) 1.4 1.0 1.7 1.7 1.7 Z-Score (X) 2.8 2.5 2.5 2.5 2.5 Source: Company, DBS Bank Page 5
Cash Flow Statement (S$ m) Pre-Tax Profit 489 528 396 400 401 Dep. & Amort. 58 54 54 51 48 Tax Paid (76) (66) (61) (60) (61) Assoc. & JV Inc/(loss) 6 31 8 8 8 Chg in Wkg.Cap. 21 4 (7) 2 1 Other Operating CF (54) (182) 0 0 0 Net Operating CF 444 369 390 401 397 Capital Exp.(net) (25) (19) (30) (30) (30) Other Invts.(net) (589) (122) 0 0 0 Invts in Assoc. & JV (18) 71 (10) (10) (10) Div from Assoc & JV 2 3 0 0 0 Other Investing CF (69) 10 0 0 0 Net Investing CF (699) (56) (40) (40) (40) Div Paid (678) (355) (336) (336) (336) Chg in Gross Debt 569 62 0 0 0 Capital Issues 17 1 0 0 0 Other Financing CF 439 (42) 0 0 0 Net Financing CF 347 (335) (336) (336) (336) Currency Adjustments 0 0 0 0 0 Chg in Cash 93 (22) 14 25 21 Opg CFPS (S cts) 26.5 22.9 24.8 24.9 24.8 Free CFPS (S cts) 26.2 21.9 22.5 23.2 23.0 Source: Company, DBS Bank Target Price & Ratings History 4.44 4.34 4.24 4.14 S$ 2 4 S.No. Date Closing Price Ta rge t Price Rating 1: 16 Jul 14 4.08 4.14 Hold 2: 16 Oct 14 4.10 4.01 Hold 3: 14 Jan 15 4.08 4.01 Hold 4: 15 Apr 15 4.14 3.98 Hold 4.04 1 3 3.94 3.84 Jul-14 Nov-14 Mar-15 Jul-15 Note : Share price and Target price are adjusted for corporate actions. Source: DBS Bank Page 6
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the DBS Vickers Group ) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group )) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ), their subsidiaries and/or other affiliates have a proprietary position in recommended in this report as of 31 May 2015. 2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 May 2015. 3. Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the company mentioned. Page 7
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No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. 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