Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-04-13: 2QFY17 Interim Dividend Cut To 6 S cents On Persistently Weak Media Earnings

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-04-13: 2QFY17: Interim Dividend Cut To 6 S cents On Persistently Weak Media Earnings SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - 2QFY17: Interim Dividend Cut To 6 S cents On Persistently Weak Media Earnings

  • SPH reported a core net profit of S$39.4m (-19.6% yoy) for 2QFY17. 
  • Earnings were within expectations, accounting for 43% of our full-year estimate. The weakness was primarily attributable to a 16-19% drop in display and classified ad revenues. 
  • The interim dividend cut to 6 S cents from 7 S cents came as a surprise, hinting at possible cashflow strains. 
  • Advertising outlook remains gloomy, in line with the sluggish economic outlook. 
  • Maintain SELL and target price of S$3.29.



RESULTS


Core earnings down 19.6%, within expectations. 

  • Singapore Press Holdings (SPH) reported 2QFY17 headline net profit of S$53.5m (-1.2% yoy) on lower media revenue.
  • The company saw a S$11.7m one-off gain from disposal of investments. Excluding oneoff items, core net profit was S$39.4m (-19.6% yoy), forming 43% of our full-year core profit forecast. 
  • This was within expectations, as 2Q is a seasonally weak quarter with 1H typically forming ~45% of full-year earnings.


Sharp drop in advertising revenue drags media segment down. 

  • Revenue from the display and classifieds segments fell by 19% and 16% yoy respectively. This tied in with the declines of 9.5% (display) and 17.7% (classifieds) yoy we note from our page count for The Straits Times. The decline was due to lower demand, as we understand that advertising rates were not cut. 
  • Circulation revenue remained stable at S$39.6m, as the decline in print subscriptions was offset by the increases in digital subscriptions.

Property and other revenues remained stable. 

  • Revenue from the property segment increased to S$62.0m (+1.3% yoy) for 2QFY17. The segment was helped by positive rental reversions of 4-8% during the quarter, with occupancy for its property assets remaining strong at 100%. 
  • Other revenue increased to S$8.0m (+6.5% yoy) led by the timing of its exhibitions and its online classified business.

Net income from investments rose to S$16.7m. 

  • SPH recognised gains from the disposal of its investment from its media fund, which we believe was in relation to completion of the Smaato divestment.

Interim dividend cut to 6 S cents. 

  • This represents a decline from 7 S cents declared in 2QFY16. Ex-date is 2 May.


STOCK IMPACT


Advertising remains weak, reflecting the sluggish economy. 

  • SPH’s key media segment is expected to remain weak, reflecting the lacklustre Singapore economy. All 12 trade segments in Singapore remained weak, with no particular trade segment leading the decline. The weakness is expected to persist. 
  • Diversification into other business segments has not yet been able to supplant earnings from SPH’s traditional media business, and is not expected to happen in the near term.

Interim dividend cut a possible hint at strains in cash flow. 

  • We understand from management that the interim cut was to soften the percentage decline in its final dividend.
  • More notable was that the interim dividend cut was also in part due to the lower cash flows generated from the media business. Assuming the media’s business decline accelerates, cash flow reduction could translate to sharper-than-expected cuts in dividend.

Divestment of Seletar Mall seems distant. 

  • The divestment of Seletar Mall does not seem imminent, as income has yet to stabilise. SPH prefers not to have to provide income support when injecting it into SPH Reit.


EARNINGS REVISION/RISK


Cut FY17 dividend to 16 S cents. 

  • We think the dividend payout is likely to range between 16-17 S cents, depending on earnings performance in 2HFY17. 
  • We have however, reduced our assumption to 16 S cents, as we expect further earnings weakness. Should an unexpected turnaround occur in 2HFY17, dividend payout would be 17 S cents at best.

Lower earnings forecasts by 2-6%. 

  • We lower our earnings forecasts in the light of the sharper-than-expected decline in advertising revenue. 
  • Our revised core earnings forecasts are now at S$246m (-1.9%), S$234m (-5.2%) and S$232m (-6.0%) for FY17-19 respectively.


VALUATION/RECOMMENDATION


Maintain SELL and target price of S$3.29. 

  • Our SOTP values the media business on a DCF-basis (WACC: 6.17%, LTGR: -1%) and the rest at fair/market value as shown.

    S$m
    Newspaper Business2,349
    M1314
    SPH REIT (70%)1,742
    Seletar Mall (70%)347
    Investments and net cash511
    Net Revalued Assets5,262
    Share Capital (m)1,598
    SOTP Valuation3.29

  • The increase in its telecommunication investment is offset by the decline in the media earnings, leaving our fair value estimate unchanged at S$3.29. 
  • SPH’s media business remains in structural decline with no turnaround in sight. 
  • Maintain SELL as lower earnings translate to dividend cuts and falling yields.




Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-13
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 3.290 Same 3.290



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