Black, white but no red ink

The black ink continued to flow over at SPH, albeit not as quickly as last year as the downturn in advertising bit into revenues. But at least there was no red ink for the newspaper-cum-property development group, which saw rental income from its Paragon department store help it post a respectable full year profit of $497 million, which was down just under 1% on 2008.

As expected, things were not so rosy in the core printing division which includes the venerable Straits Times, the racy New Paper and the Chinese language instructional My Paper.

Revenues for printing fell 12 % to S$892.4m. So it was left to the property arm of SPH to ride to the earnings rescue, and it did with the successful launch of its Sky@Eleven Project. But that is the last of its property projects, and going forward earnings will slide, according to OCBC analyst Carmen Lee. “FY10 will see SPH recognising the final phase of its Sky@Eleven project and the profit recognition from this condo project helped prop up the group in the midst of its weak core printing business. Unless SPH embarks on another accretive property project, we believe that we will see earnings sliding from FY10.” So will there be any more forays into the property development market from SPH ? Whilst the company has none on the books, management has told analysts it has gained confidence in the property development business. It narrowly lost out on a bid to buy a 1.38 ha plot at Lorong Chua, coming in with the fifth highest bid out of 15.

To Lee’s mind, this at least showed the group was responsible in its bidding and had a good grasp of the market. “Despite coming in fifth, the small spread of S$18psf of gross floor area between SPH and the 2nd highest bidder indicated that it had a decent pricing model and apt property market awareness.

While this is a business that management is keen to embark on in larger scale, we note that it could introduce increased risks to the group’s earnings with fluctuating property cycles.” Well at least we know where to read all about it.

How many Capitas can a bear market bear?
CapitaLand may be trading at around half its pre market peak, but that hasn’t stopped the property giant from considering another way to spin off a subsidiary, raise some more cash, and keep the juggernaut juiced for its next foray. In its latest move, the group announced that its retail business holdings would be spun off into a new entity called CapitaMalls Asia. The listing is expected to raise $1.6 billion for the group, which recently raised a whole chunk of cash through a rights issue. So what will they do with the cash? Hapless CapitaLand investors may be lucky enough to receive the proceeds as a special dividend – or maybe not. CapitaMall Asia will have exposure in 86 retail malls (59 operational; 27 under construction) in Singapore, China, Malaysia, Japan and India, and should have total assets of S$6.3bn. Let’s go shopping.

Building bridges

A pick up in construction is helping crane manufacturer Tat Hong, who says the worst is over for its business.

In its latest briefing, the company announced it had received a capital injection of $65 million from an outfit called AIF Capital in exchange for an 11.4 % stake. AIF manages $1.5 billion and has investments in companies such as the Catholic Syrian Bank, China Wheel company, and Charm Communications.

The company said it will use the cash to prop up its balance sheet and make some acquisitions, presumably through deals brought to it by AIF, which also owns a stake in agribusiness conglomerate Olam International.

“Tat Hong has weathered several challenging quarters as equipment sales plunged along with the global economic crisis, leading us to project earnings contraction for FY10. On a positive note, management believes that the worst is over. 3Q10 earnings are expected to rebound as banks loosen their credit lines and customers regain confidence. Tat Hong has been steadily increasing its focus on rental income, which now accounts for 68.5% of gross profit. This strategy will ensure the group’s profitability through ups and downs of economic cycles, and will capitalize on customers’ growing preference for equipment rental rather than outright capital investments,” said OCBC analyst Lee Wen Ching.