CIMB Research 2015-07-10: SPH - Media outlook remains bleak. Maintain Reduce.

Media outlook remains bleak 

  • SPH’s 9MFY15 core net profit of S$237m beat expectations, forming 87%/81% of our/consensus full-year forecast. 
  • However, this was due to the gain on sale of investments which was timed along with the redemption of its S$600m MTN notes in 3QFY15. 
  • Excluding the gain, 9MFY15 operating profit of S$276m was broadly in line at 74% of our full-year estimate. 
  • We raise our FY15-17 EPS by 1-11% to factor in the higher investment income and lower share of losses from associates. 
  • However, our SOP-based target price falls to S$3.90 mainly due to the lower value of its 14% stake in M1. 
  • We maintain our Reduce rating on continued headwinds in the media segment. 

Net profit propped up by investment gains 

  • SPH’s 9MFY8/15 core net profit rose 14.6% yoy, mainly due to: 
  1. 1) a gain on sale of investments amounting to S$44.9m (9MFY14: S$24.1m), and 
  2. 2) lower share of losses from associates relating to the regional online classifieds business. 
  • The investment gains arose from the sale of more investments to fund the redemption of its S$600m MTN notes in Mar. As a result, the group’s investible fund size fell from S$1.9bn to S$1.3bn. 

Operating profit in line with expectations 

  • 9MFY15 operating profit grew by a more muted 2.5% yoy. 
  • Revenue in the media segment continued to decline (-6.7%), led by the fall in advertisement (-7.6% yoy) and circulation (-6.6% yoy) revenue. 
  • Property revenue held up well (+11.7% yoy), boosted by The Seletar Mall, which started contributing in 2QFY15. Excluding The Seletar Mall, we estimate that property revenue would have increased 1% yoy. 
  • Operating profit margin improved to 31.2% (9MFY14: 29.3%), due to lower materials, production and distribution costs as the average newsprint charge-out price further softened by c.7% yoy. 

Maintain Reduce 

  • We continue to see headwinds in the core media segment, which contributed 62% of PBT in 9MFY15. 
  • We expect the competition from digital media to further drive down newspaper and magazine circulation, while the environment for newspaper advertisements has yet to take a positive turn. 
  • Meanwhile, contributions from SPH’s investments in new media are still not meaningful enough to offset the loss in earnings from the traditional media business. 
  • We maintain our Reduce call on SPH due to this challenging outlook.

(Jessalynn CHEN)

Source: http://research.itradecimb.com/