Singapore Press Holdings SPH - DBS Research 2015-10-14: Falling dividends

Singapore Press Holdings SPH - DBS Vickers Research 2015-10-14: Falling dividends SINGAPORE PRESS HLDGS LTD SPH T39.SI 

Singapore Press Holdings SPH - Falling dividends 

  • Core earnings in line. 
  • Final and special DPS was lower at 13 Scts, with full year DPS at 20 Scts vs 21 Scts last year. 
  • Slower economic growth a dampener to ad spend, earnings and DPS expectations. 
  • Maintain FULLY VALUED and S$3.51 TP. 


Highlights 


Core 4Q15 and FY15 earnings in line, DPS disappoints. 

  • 4Q15 revenue declined by 2% y-o-y while operating profit fell by 4%. Topline continues to be dragged by lower circulation and adspend, while higher staff headcount weighed on operating margins. 
  • Nonetheless, headline net profit of S$322m for the full year outperformed our estimates by 8% due largely to fair value gains from SPH REIT. 
  • A final and special DPS of 8Scts and 5 Scts were declared, bringing total dividends for the full year to 20 Scts. This is below our expectation of 21 Scts. 

Outlook 


Slowing GDP growth will lead to lower adex. 

  • We believe a weaker macroeconomic setting is likely to impact adex negatively. Rising corporate and consumer interest rates, tepid export demand, higher cost environment, and weak consumer sentiment could prompt a cut back in consumer spending, and lead to 
    1. slowing demand for products and services, and 
    2. lower advertising expenditure by companies. 
  • Notwithstanding its strong balance sheet, we do not discount the possibility of a further DPS cut led by declining earnings in FY16F/FY17F. Our earnings forecast remains largely unchanged as we had already reduced our earnings estimates earlier to reflect slower GDP growth and less positive adex outlook. 

Valuation: 


TP of S$3.51 based on sum-of-parts. 

  • Our target price of S$3.51 is based on sum-of-parts valuation. We value SPH's core newspaper and magazine operations at S$1.43/share based on discounted cash flow model. 
  • SPH’s 70% stake in SPH REIT is valued based on our target price of S$0.99. These two parts are added to the estimated value of Seletar Mall, net cash and investments, to derive our TP. 

Key Risks: 


Improvement in macroeconomic environment. 

  • SPH's advertising revenue is contingent on economic sentiment, and a turn for the better or worse could further impact its core advertising revenue. Key indicators include the general state of economy including GDP, interest rates and consumption spending, on which we currently hold a less positive view. 
  • We believe these will ultimately impact advertising spend and earnings negatively. Our view is premised on a declining adex, and thus an economic recovery with adex improvement will derail our negative view.


Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2015-10-14
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 3.51 Same 3.51


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