Singapore Press Holdings SPH - CIMB Research 2015-10-14: Not looking up

Singapore Press Holdings SPH - CIMB Research 2015-10-14: Not looking up SINGAPORE PRESS HLDGS LTD SPH T39.SI 

Singapore Press Holdings - Not looking up 

  • SPH’s FY15 core net profit of S$285m was below our expectations (S$301m) and consensus (S$305m). 
  • Media revenue (-6.3% yoy) continued to decline due to falling A&P spending by retailers, with no respite in the medium term, given the soft advertising market. 
  • Total DPS for FY15 was cut to 20 Scts (FY14: 21 Scts). 
  • We see risk of further DPS cuts in FY16-17. 
  • Our SOP-based target price falls to S$3.85 after rolling forward to FY16. 

Media dragged down overall earnings performance 

  • FY15 saw positives from: 
    1. maiden contributions from Seletar Mall (property revenue +13% yoy), 
    2. higher other operating income (+74% yoy), 
    3. lower materials, production and distribution costs (-12% yoy). 
  • However, these positives were doused by a contraction in media revenue (-6% yoy) as advertisement and circulation revenue fell by 7% and 5% yoy, respectively. 
  • Media PBT shrank 6% yoy to S$241m (vs. overall PBT growth of 8%). 

Operating profit would have fallen, excluding one-off costs 

  • Operating profit rose 1.3% yoy in FY15 but this figure was masked by the presence of one-off costs in FY14-15. In FY14, SPH recognised a S$10.4m special staff bonus and a S$9.9m impairment charge relating to the media business. 
  • FY15 saw an impairment charge of S$9.1m for the magazine business. Excluding these one-off charges, we estimate that operating profit would have fallen by 1.8% yoy. 

Soft advertising market continues to weigh on the media business 

  • The media segment (77% of revenue, 61% of PBT) continues to face headwinds from the soft advertising market. This is attributable to various factors: 
  • 1) the weakening of ASEAN currencies against the S$ continues to weigh on tourist arrivals and retail spending, prompting retailers to cut back on A&P spending, 
  • 2) government measures on property and cars, 
  • 3) fewer IPOs, and 
  • 4) overall weakness in the domestic economy. 
  • We continue to forecast a decline of 3-4% in media revenue in FY16-17 (vs. -6% in FY15). 

Lack of sustainability in operating profit 

  • While the newsprint charge-out price has contracted by 6% CAGR in FY12-15 and helped to alleviate cost pressures, management guided that prices are likely to trough at current levels. SPH has also tried to derive other income by hosting events (e.g. ST Run, Jubilee Walk) to buffer the fall in earnings. However, these income streams are less meaningful and sustainable. 
  • Given the headwinds, we continue to expect a 3-5% decline in operating profit in FY16-17. 

Lower target price; risk of more dividend cuts 

  • We maintain our Reduce call on SPH, with a lower SOP-based target price of S$3.85 after rolling forward to FY16. One of our investment theses for a Reduce call was that SPH’s dividends are not sustainable, given the declining core media earnings and lack of meaningfully-accretive investments to counter the decline. 
  • DPS has been cut by 1-2 Scts per year since FY13 and we continue to expect further cuts in DPS going forward. The 20 Scts DPS declared in FY15 implies a 102% dividend payout ratio.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-10-14
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