Singapore Press Holdings SPH - UOB Kay Hian 2015-09-09: Advertising Revenue Is Still Weak.

SINGAPORE PRESS HLDGS LTD T39.SI 

Advertising Revenue Is Still Weak 

  • Our page monitor points to an ad spend contraction of 2% yoy in 4QFY15 (3QFY15: reported -9% yoy). We expect SPH’s print revenue (including magazines) to have declined 6% yoy in FY15 and to remain flat in FY16 and FY17. 
  • We are projecting real GDP growth of 2.5% for 2015 and 2.9% for 2016. 
  • While we do not see any near-term share price catalysts, the annual dividend yield of about 5% remains decent. 
  • Maintain HOLD. Target price: S$4.00. Entry price: S$3.80 and below. 



WHAT’S NEW 


Advertising revenue is still weak. 

  • Our monthly page monitor of The Straits Times suggests newspaper advertising revenue (AR) contracted 2% yoy in 4QFY15 (Jun-Aug 15) vs a reported AR contraction of 9% yoy in 3QFY15. However, actual AR contraction could be larger than the 2% suggested by our page-counts (as was the case for 3QFY15). 
  • SPH had earlier attributed its weak AR to advertisers’ reluctance to step up spending in view of: 
    1. weak domestic spending given the locals’ high propensity to travel and spend overseas and via e-commerce, 
    2. lower tourist arrivals. 
  • Total tourist arrivals contracted -5.5% yoy ytd. 


STOCK IMPACT 

  • Thus far, SPH has managed to shore up earnings – through cost savings – despite a weak AR. We expect SPH's revenue to be flat and minimally impacted if GDP growth is within 0-3%. AR gets impacted materially when GDP growth accelerates beyond the threshold level of 3%, or decelerates into a recession. Since 2012 government restrictions on property and car loans have had a one-off impact on ad spend in those segments. Otherwise, revenue would have been flat for the period. 
  • The chart also indicates that revenue expands/contracts with respect to the change in GDP growth, evident from the up-swing/down-swing seen in 2007 to 2011. We assume SPH’s print revenue (including magazines) to decline 6% yoy in FY15 and remain flat in FY16 and FY17. If real GDP growth should drop to 0-1%, we expect SPH’s AR to be flattish. We are projecting real GDP growth of 2.5% for 2015 and 2.9% for 2016. 
  • Dividend yield is decent. Share price is expected to be flat, but annual dividend yield of about 5% for FY15-17 are decent amid a low interest-rate environment. 
  • Financial year-end trading opportunity. Traditionally, the share price sees a rally in the three weeks leading up to the final results announcement in mid-October, in anticipation of the final dividend announcement. 


EARNINGS REVISION/RISK 

  • We maintain our earnings forecasts. 


VALUATION/RECOMMENDATION 


• Maintain HOLD. 

  • We lower our target price from S$4.20 to S$4.00 due to a lower SOTP of S$4.04 (previously S$4.19) as stock prices of M1 and SPH REIT have fallen. 
  • Our recommended entry price is S$3.80 and below. 


SHARE PRICE CATALYST 

  • Share price catalysts are lacking. Traditionally, the share price has had a good correlation to advertising revenue growth and hence, our monthly page-counts.

Nancy Wei | http://research.uobkayhian.com/ UOB KH 2015-09-09
HOLD Maintain HOLD 4.00 Down 4.20


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