SPH's profits up 7.5% to $81.3m

But here's why analysts were not impressed.

According to OCBC Investment Research, for the quarter, SPH recognized a S$52.9m one-time gain for the partial divestment of 701Search to Telenor, which resulted in PATMI increasing 7.5% YoY to S$81.3m.

Overall, OCBC judges 2Q numbers to be a miss; ad contributions was below expectations and we revise our FY14 operating income forecast down by 16.5% to S$322.7m, after incorporating 2Q‟s one-time items as well. Management declared an interim dividend of 7 S-cents.

Here's more:

2QFY14 operating income came in at S$53.5m, down 36.8% YoY, mostly due to lower ad contributions, staff costs rising 18.2% (S$15.6m) and a S$9.9m impairment charge.

The latter two were related to the cost-saving initiatives implemented last year as management restructured the framework for staff compensation and also optimized printing capacity with the removal of a press line.

Difficult outook for ad revenue

The outlook for ad revenue remains difficult, with the decline accelerating to a 7.3% YoY dip in 2QFY14 versus -2.9% in 1QFY14. Management continues to cite tough conditions, particularly in the property space as the number of new launches fell significantly YTD. Material costs remained stable (newsprint unchanged QoQ at US$611/mt) while staff costs rose by S$15.6m.

Going forward, management indicated that they would reduce headcount by ~300 from its current level of 4.3k, but expect the staff costs run rate to increase by ~S$10m p.a., given growth incentives embedded in the group‟s compensation structure.

On the property front, the Seletar Mall is on target to complete by Dec-14. The asset is now ~60% pre-leased and rental rates are likely to be in the low teens.

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