Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-06-09: Page Count Points To Further Weakness In 3QFY17 Print Revenue

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-06-09: Page Count Points To Further Weakness In 3QFY17 Print Revenue SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - Page Count Points To Further Weakness In 3QFY17 Print Revenue

  • Our page count shows total ads in 3QFY17 declining 13.7% yoy, coming in below 1QFY17 levels in a reversal of historical trends. 
  • We forecast print revenue to further decline by 15% (previously -10%) on worse-than-expected deterioration. A bottoming in earnings remains elusive for SPH. 
  • It is also still too early to bet on a healthcare-led turnaround as earnings contributions are insufficient to offset the decline in the media business. 
  • Maintain SELL with a lower target price of S$2.90.



WHAT’S NEW


Advertising downtrend worsened in 3QFY17. 

  • Based on UOBKH’s page count for Singapore Press Holdings (SPH), total ads for the Straits Times fell 13.7% yoy as advertising continued to worsen. Sequentially, the decline was larger than the 12.2% and 3.7% yoy decline in 2QFY17 and 1QFY17 respectively. 
  • Historically, SPH’s 3QFY17 is one of two stronger quarters for advertising (the other being 1QFY17), with 3Q FY17 typically close (~0.1%) to 1QFY17 levels on average. However, total ad count in 3QFY17 turned out to be 7.3% weaker than 1QFY17’s, a significant downward shift from historical trends.


STOCK IMPACT


Media earnings likely to be 5% weaker in FY17. 

  • The significant 13.7% yoy decline in page count points to larger-than-expected weakness in the media business. 
  • At the current rate, the decline in revenue is likely to be in mid-teens, instead of the low teens we had anticipated. Adjusting our earnings for this assumption results in a 5% decline to our FY17 earnings estimate.

Media earnings’ bottoming remains elusive. 

  • The media business continues to face weakness, with a bottoming in earnings not apparent. Print revenue had always been closely tied to Singapore’s GDP change, and the sequential improvement in GDP numbers over the past few quarters should have resulted in an improvement as well.
  • However, we note that the correlation has diverged, pointing to greater structural forces at play. A bottoming of earnings for the media business in the near term remains elusive.
  • For now, we have penned a 7.5% yoy decline in print revenue for FY18, and 5% yoy decline in FY19. Every 1ppt decline in print revenue is estimated to translate to a 3 S cent decline in our target price.

Still early to bet on a healthcare-led turnaround. 

  • The recent acquisition of Orange Valley Healthcare is unlikely to change SPH’s fortunes in the near term. Earnings from the business is small compared to SPH’s core businesses, with operating profit for Orange Valley at ~S$9m as of end-15. This is insufficient to offset the decline in operating profit of the media business, which fell S$14m in 2015 and S$36m in 2016. 
  • Until the healthcare business grows to a larger size, SPH will continue to see share price weakness led by continued decline in its media business over the near term.


EARNINGS REVISION/RISK


Reduce earnings by 5-9% for FY17-19. 

  • We have revised the revenue yoy decline in the media business from 10% to 15% for FY17. The yoy decline rates for FY18-19 are 7.5% and 5% respectively. 
  • Our revised core earnings forecasts for FY17-19 are S$234m (-5%), S$219m (-7%) and S$212m (9%) respectively. 
  • Our forecasts have yet to incorporate any earnings contributions from Orange Valley Healthcare.

No change to FY17 dividend forecast. 

  • Our dividend forecast for FY17 remains unchanged at 16 S cents as we believe SPH will stretch its dividend payout ratio to soften the dividend cut.


VALUATION/RECOMMENDATION


Maintain SELL and cut target price to S$2.90. 

  • Our SOTP values the media business on a DCF-basis (WACC: 6.17%, LTGR: -1%) and the rest at fair/market value. SPH’s media business remains in structural decline with no turnaround in sight. 
  • In the near term, we could see price support in hope of a special dividend payout from the potential divestment of its M1 stake. However, we caution that any dividend payout will have to be balanced between rewarding shareholders and re-investment. 
  • Maintain SELL on continued weakness in SPH’s core media business.







Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-06-09
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 2.90 Down 3.290



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