SPH - 1H09 impacted by one-offs but core ops generally in line

1H09 impacted by one-offs but core ops trending in line; Hold maintained SPH reported S$160m 1H09 net profit, slightly below DBe (S$180-200m), as 1Q09 investment losses and 2Q09 associate losses impacted. But the core operations are trending in line, with stable rental income and advertising revenue decline within expectations. Management declared a S$0.07/share interim dividend and reiterated commitment to the existing dividend policy. We maintain Hold given our expectations the stable core operations and Sky@eleven will support FY09e yield.

1H09 total operating revs +2.8% YoY, largely supported by Sky@eleven and Paragon rental income. And although 1H09 core print revenues -9% YoY, this did not exceed expectations. For example, while 1H09 ad revenues fell 14% YoY, the S$334m 1H09 ad revenues were in line with DBe (S$340m). 1H09 Sky@eleven revenues (S$91m) were below expectations on slower-than-expected construction progress, but management assured the project is on track for CY2010 completion. We recognize SPH’s FY09e earnings and yield are dependent on Sky@eleven contributions and as such will watch construction progress closely.

1H09 core print opex grew 5.7% YoY as higher newsprint costs and new media investments offset an 8% YoY decline in staff costs (lower bonuses). As such, core print EBITDA margins declined to 28.1% (vs 1H08 36.1% and DBFY09e 29%). Going forward, management is implementing a number of cost controls (e.g. controlled hiring, salary reductions) that should support 2H09 margins.

Despite the general slowdown and various one-offs impacting SPH’s 1H09, the core operations were generally in line and we expect cost controls to increasingly support. We believe SPH’s near-term dividends are sustainable and maintain Hold. Our SOTP TP of S3.10 is derived using DCF for the core media business (7% WACC & 1% g, reflecting S’pore’s long-term growth potential), Paragon at discount to book value, M1 at DB TP and investments as at end 1Q09. Key risks include adex, property valuations and investments.