SPH - DBS Research 2016-10-17: Adspend continues to be lacklustre

SPH - DBS Vickers 2016-10-17: Adspend continues to be lacklustre SINGAPORE PRESS HLDGS LTD T39.SI

SPH - Adspend continues to be lacklustre

  • FY16 results within expectations.
  • Adspend continues to be lacklustre.
  • Full year DPS lower at 18 Scts.
  • Outlook remains weak; maintain FULLY VALUED.


Maintain FULLY VALUED. 

  • We maintain our FULLY VALUED recommendation for SPH as its current share price valuation at 24x PE and 4.5% yield is expensive premised on our view that its core print ad revenue remains under pressure. 
  • Core media business continues to be dragged by declining advertising expenditure which we believe will lead to weaker adspend, and hence a poorer earnings outlook.


4Q16 results within expectations. 

  • FY16 (FYE Aug) net profit came in at S$265.3m, down by 17.5% y-o-y, while revenues declined by 4.5% to S$1.12bn. 
  • FY16 recurring operating profit fell by 13.7% y-o-y to S$305.2m, arising from lower revenue and impairment of goodwill and intangibles (S$28.4m) but mitigated partially by lower operating costs. 
  • A final/special dividend of 11 Scts was per share proposed. Including the interim dividend of 7 Scts paid, total dividend for FY16 was 18 Scts, lower than FY15’s 20 Scts and our expectations (19 Scts).


Adspend outlook weak given lackluster economy. 

  • With the recent weaker than expected 3Q16 GDP figures for Singapore, our economist signaled that downside adjustments persist. As such, this could continue to put pressure on adspend. 
  • We trimmed our FY17F/18F earnings by 3.5%/ 4.5% as we expect adspend to contract further, mitigated partially by costs control.
  • We also expect downside pressure on DPS and project it to be 17 Scts for FY17F/18F.

Valuation

  • TP of S$3.44 based on sum-of-parts. Our target price of S$3.44 is based on sum-of-parts valuation. 
  • We value SPH's core newspaper and magazine operations at S$1.49/share based on discounted cash flow model, SPH’s property business at S$1.38, and net cash and investments of SS$0.57 to derive our TP.

Key Risks to Our View

  • Adex reversal, disposal of investment stake and expectations of special dividends. A strong economic recovery and pick-up in consumption will lead to adex improvement, which is a key risk to our view. 
  • Sale of its investments, such as M1, could also lead to expectations of higher special DPS.




Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-10-17
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 3.44 Down 3.500



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