Tuesday, January 13, 2009

SPH unexpected investment loss

Facts first :

  1. Profit after tax and minority interest (PATMI) drop 35% Year-on year ( YOY) to S$73m ( first since 1Q03)
  2. Mostly due to S$33.7m losses in marked to market (MTM) on investment portfolio, mostly in externally managed funds
  3. Printing revenue ( core business) drops

My analysis ( some assumption because I did not look at the balance sheets) :

  • From point 1 above, it implies that the previous year's PATMI is around S$112m.
  • Assuming there is no MTM loss, the PATMI for the current year should be S$73+S$33.7 = S$106.7m
  • This implies there is additional loss of profits from other factors like the advertisements of around S$112-S$106.7 = S$5.3m
  • From what I know, the cost of placing advertisements in the straits times has increased by many times over the years.
  • Hence for the total revenue to stay the same, it means that there are actually fewer people placing ads in the newspaper. ( i.e. there is a lack of supply of people wanting to put ads)
  • With the crisis slowing creeping into Singapore, I would expect lesser people wanting to put ads, and hence this is going to affect their operating profits even more.
  • However on the other hand, MTM loss is really just 'The act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value.' ( taken from Wikipedia)
  • Hence its more of a paper loss. Meaning if the market to recover, this MTM will defintely contribute to the 'profits of the company.

In all it seems that SPH's is really diversifying its business into property and investments. If you have faith in their investments ( which are causing the MTM losses ), it might be a good time to buy this stock.

As for the ads revenue, it will not be THAT bad, but i feel that for SPH to grow even more and give shareholders more value, we should be looking more at their investments and property business.