Singapore Press Holdings (SPH SP) - 1QFY17 Results In Line With Expectations Of Continued Earnings Headwinds
- Headline earnings of S$45.7m (-44%) were marred by a S$15.9m impairment charge to the media business. Excluding this, SPH’s 1QFY17 core earnings were in line with expectations.
- The media business continues to face headwinds, while property earnings remain stable. SPH’s media business remains dependent on the economic prosperity of Singapore which looks lacklustre.
- Earnings remain pressured and dividends cuts will be likely.
- Maintain SELL. Target price: S$3.29.
Core earnings down 14%, in line with expectations.
- Singapore Press Holdings (SPH) reported a 1QFY17 headline net profit of S$45.7m (-44% yoy) on lower media revenue, impairment charges and a drop in investment income.
- The quarter saw S$15.9m in impairment charges, arising from one-off retrenchment costs, and impairments arising from an allowance for associates and property, plant and equipment (PPE). Excluding this, core net profit was S$65.1m (-14% yoy), forming 26% of our full-year core profit forecast and in line with our expectation.
- SPH’s quarterly earnings exhibit seasonality, with 1Q typically accounting for 26-27% of full-year core earnings.
Media revenue down by 9% yoy, remains anaemic.
- The media business remained weak, declining 9% yoy. This was led by a sharp drop in advertisement revenue (S$202m, -14% yoy), led by double-digit declines from display (-16% yoy) and classified advertisements (-12% yoy).
- Circulation revenue was flat; lower print circulation was offset by the rise in cover prices and higher digital circulation revenues.
Property business remains stable.
- Revenue for the property segment was flat at S$60.5m (+1% yoy), lifted by higher rental income from retail assets of the group.
Other businesses revenue up 18% yoy.
- Revenue from other businesses rose to S$15.9m (+18%), led by higher contributions from its exhibitions business.
EBITDA margin declines 5ppt to 36%.
- Core EBITDA fell from S$121m in 1QFY16 to S$100m in 1QFY17, owing to soft revenue contribution from the media business.
- Core EBITDA margin fell from 41% in 1QFY16 to 36% in 1QFY17, in what seems to be a steady erosion of SPH’s cashflow.
Core operating margin hovers marginally above 30%.
- Core operating margins fell from 36% in 1QFY16 to 31% in 1QFY17. This was due to a 2.6% increase in operating expenditure, which would have been higher if not for cost reductions in newsprint and staff costs.
Weak economic prospects to see continued earnings weakness.
- SPH’s earnings continue to be driven by its media segment, which is dependent on the economic prosperity of Singapore.
- Lacklustre business sentiment lowers spending on display and classified ads. Ad revenue is fairly correlated with Singapore’s GDP, with weak GDP growth numbers (3Q16: +0.6%, 4Q16: +1.8%) usually corresponding with weak advertising revenue.
- With full-year 2017 GDP growth for 2017 expected at 1-3%, ad spending and hence revenue likely will remain weak.
- Diversification efforts into property and other businesses have yet to supplant earnings from the media segment. As such, overall earnings will continue on its downward trajectory, impacting dividend payout.
- No change to earnings forecast. We keep our FY17-19 earnings forecasts unchanged at S$251m, S$247m and S$247m respectively.
Maintain SELL; target price unchanged at S$3.29.
- Our SOTP values the media business on a DCF-basis and the rest at market value, translating to a target price of S$3.31. This assumes a WACC of 6.17% and terminal growth of 0%.
- The higher valuation arises from an increase in SPH’s cash holding in 1QFY17. Given the 1% difference in valuation, we maintain our target price of S$3.29.
- SPH continues on a downward trajectory of weaker earnings with falling dividends.
- Maintain SELL.
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