Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-01-16: 1QFY17 Results In Line With Expectations Of Continued Earnings Headwinds

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-01-16: 1QFY17 Results In Line With Expectations Of Continued Earnings Headwinds SINGAPORE PRESS HLDGS LTD T39.SI

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.



RESULTS


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.



STOCK IMPACT


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.



EARNINGS REVISION/RISK

  • No change to earnings forecast. We keep our FY17-19 earnings forecasts unchanged at S$251m, S$247m and S$247m respectively.


VALUATION/RECOMMENDATION


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.


SHARE PRICE CATALYST

  • Divestment of Seletar Mall.




Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-01-16
UOB Kay Hian SGX Stock Analyst Report REDUCE Maintain REDUCE 3.290 Same 3.290





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