Singapore Press Holdings - Proxy for the weak economy
- We expect the headwinds in the core media business to persist due to slowdown in the economy and no apparent plans by the government to lift property measures.
- Challenges are exacerbated by the shift from print to digital media.
- The divestment of Seletar Mall is the only potential positive catalyst to look out for, but we think this could take some time to materialise.
- Maintain Reduce and SOP-based target price of S$3.35.
No end in sight to newspaper ad weakness
- Newspaper ad revenue continues to decline at an accelerated pace, as poor business sentiment and outlook weigh on advertising spend.
- A tough retail environment, lack of plans by the government to lift property cooling measures and the shift towards more targeted and cost-effective online advertising could mean there is no end in sight to SPH’s falling newspaper ad revenue.
- We have built in a 9% yoy fall in newspaper ad revenue for FY17F, and there could be further downside risk if economic growth does not pick up.
Circulation revenue’s pace of decline could speed up
- Newspaper and magazine circulation revenue had some relief from the newspaper cover price increase on 1 Mar 2016 and SPH reaching out to new distribution channels.
- Going forward, we expect the decline in circulation revenue to pick up pace as the positive impact of the cover price increase tapers off.
- The introduction of all-in-one and one-digital packages could cannibalise its subscriber base as more users share one subscription.
Cost cuts and investments in new media can only do so much
- SPH has embarked on a comprehensive review of its media business, and plans to enact further cost-cutting measures including a headcount reduction exercise. While this could buffer earnings downside in the near term, we think that there is a limit to the extent that costs can be cut; the focus should be on driving revenue growth instead.
- SPH has invested in new media startups and organised several ad hoc events, but these have not moved the needle much. Most startups continue to be loss making.
Property remains stable; potential divestment of Seletar Mall
- Property remains the sole stable earnings contributor, as Paragon and Clementi Mall continue to see positive rental reversions despite the challenging retail environment.
- The next potential catalyst is the divestment of Seletar Mall. However, it must realise positive rental reversions to reach 5% yield before it can be divested to SPH REIT.
- Special dividends could be paid upon divestment, although SPH’s stake in Seletar Mall would be unchanged at 70% (it has a 70% stake in SPH REIT).
- SPH cut FY16 DPS by 2 Scts to 18 Scts. It is becoming increasingly difficult for SPH to maintain dividends, as recurring earnings continue to slide. SPH typically pays out 90-100% of operating profit in dividends.
- We foresee a further 1 Sct cut in DPS for FY18-19F, based on c.95% payout ratio and expectations of 4-5% earnings decline p.a.
- We maintain a Reduce call on SPH, with a SOP-based target price of S$3.35 (Media: S$1.80, SPH REIT: S$1.15, Seletar Mall: S$0.22, investments/net cash: S$0.19).