SOFT OUTLOOK
- Maintain HOLD, unexciting outlook for print ads, yet stock is supported by c.5% dividend yield.
- We are neutral on SPH as we believe print ad growth will be soft on the back of tepid GDP growth and consumption spending.
- We believe this presents fundamental risks to earnings growth and upward resistance to the stock.
- Yet the stock is supported by a strong DPS payout of 21 Scts and c.5% dividend yield that limit its downside.
- Our view on the stock is neutral and hence a HOLD.
2Q15 results in line.
- Core earnings were within expectations, but headline earnings were ahead, boosted by S$24m investment gains.
- Revenue declined by 1% to S$307m while operating profit improved 1% to S$112.4m, driven by lower material, staff and depreciation expenses.
- Print ad spend has registered negative y-o-y growth since 2014. Since February 2014, ad spend has been declining at rates of between flat and -13% y-o-y. We attribute this to sluggish GDP growth in Singapore and muted consumer spending.
- Going forward, our economics desk is expecting Singapore to enter its slowest GDP growth in six years for 2015 at 2.4%.
Valuation:
TP of S$3.98 based on sum of parts.
- Our target price of S$3.98 is based on sum-of-parts valuation.
- We value SPH's core newspaper and magazine operations at S$1.86/share based on discounted cash flow model.
- SPH’s 70% stake in SPH REIT is valued based on our target price of S$1.03.
- These two parts are added to the estimated value of Seletar Mall, net cash and investments to derive our TP.
Key Risks to Our View:
Uncertainty in macroeconomic environment.
- SPH’s advertising revenue is contingent on economic sentiment, and a turn for the worse could further impact core advertising revenue.
- Key indicators include the general state of economy including GDP, inflation and consumption spending. These will ultimately impact advertising spend and earnings.
(Alfie YEO; Andy SIM, CFA)
Source: http://www.dbsvickers.com/
