Singapore Press Holdings (SPH SP) - UOB Kay Hian 2017-08-31: Total Ads Decline Slows To 10%; Not Out Of The Woods Yet

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SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - Total Ads Decline Slows To 10%; Not Out Of The Woods Yet

• Total ads for SPH continued on a decline (-10% yoy) in 4QFY17, but at a lower rate than in 3QFY17. 
• Historical analysis of such a slowdown indicates it is still early to call a reversal to the decline in print revenue. In the best case, we expect print revenue to bottom out and stay flat. 
• Negatives have largely been priced in. 
• Maintain HOLD and target price of S$2.85. Entry price: S$2.60.

WHAT’S NEW

Advertising downtrend softens in 4QFY17. 

• Based on UOBKH’s page count for Singapore Press Holdings (SPH), total ads for the Straits Times fell 10.3% yoy in the continued depressed advertising environment. Despite this, the decline represented a slowdown from 3QFY17, given the improvement of 3.4ppt. 
• On a qoq basis, total ads were almost flat, possibly hinting that advertising demand might have bottomed out. 
• Ad counts for the various segments remained down 7-21% on a yoy basis, notably for recruitment (- 21% ) and classifieds (-18%). Display saw a slight qoq uptick of 2%, which is likely due to the pick-up in property advertising.

Still early to call a media earnings bottom. 

• The slowdown in page count decline could be perceived as an indicator of a reversal in print revenue decline. However, a historical analysis shows that this may not necessarily be the case. 
• Underlying structural issues persist, as noted by the widening divergence in print revenue and GDP, where a strong correlation used to exist.

Print revenue to stay flat at best. 

• In the best-case scenario, should the rate of page count decline continue to slow, we expect it to arrest print revenue and keep it flat.
• Otherwise, our base case assumption still calls for an additional print revenue decline of 7.5%/5.0% in FY18/19 respectively.

EARNINGS REVISION/RISK

• No change to earnings estimates.

VALUATION/RECOMMENDATION

Maintain HOLD and target price of S$2.85. 

• Our SOTP values the media business on a DCF-basis (WACC: 6.17%, LTGR: -1%), its stake in M1 at our in-house fair value of S$1.98 and the rest at fair/market value. 
• SPH’s media business remains in a structural decline, though we think the negatives have largely been priced in.
• Maintain HOLD. SPH's share price is not expected to decline sharply unless advertising sees a larger-than-expected decline. 
• Entry price is S$2.60.

Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-31

UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.850 Same 2.850