Singapore Press Holdings SPH - CIMB Research 2015-12-09: Weak macro environment does not bode well

Singapore Press Holdings SPH - CIMB Research 2015-12-09: Weak macro environment does not bode well SINGAPORE PRESS HLDGS LTD SPH T39.SI 

Singapore Press Holdings - Weak macro environment does not bode well 

  • Traditional media operations continue to be affected by falling A&P spend by retailers amid a weak macro environment. 
  • Efforts to boost topline through investments in new media and hosting one-off events are unlikely to offset the decline in traditional media revenue. 
  • We see risk of further DPS cuts in FY16-17 as earnings continue to come under pressure. 
  • Maintain Reduce, with a SOP-based target price of S$3.85. 

■ Weak macro environment continues to weigh on media segment 

  • The media segment (77% of revenue, 61% of core PBT) continues to face headwinds from the soft advertising market in Singapore. This is due to: 
    1. the weakening of ASEAN currencies against the S$, which weighs on tourist arrivals and retail spending, 
    2. cuts in retailers’ A&P budgets, 
    3. cooling measures on property and cars, 
    4. fewer IPOs, and 
    5. 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). 

■ Property to remain the stable contributor 

  • The property segment (20% of revenue, 38% of core PBT) remains the stable earnings contributor, with FY15 seeing maiden contributions from The Seletar Mall, which opened on 28 Nov 2014. 
  • We expect FY16 property revenue and PBT to see a small uplift of 6% and 4% respectively, mainly due to full-year contributions from The Seletar Mall vs. 9M in FY15. 
  • AEIs at Paragon will also increase NLA by 7,000 sq ft progressively from FY16- 18, though this could be partially offset by the challenging outlook for retail sales. 

■ Lack of sustainability in operating profit 

  • FY15 saw some positives that are unlikely to repeat: 
    1. The newsprint charge-out price has contracted by 6% CAGR in FY12-15 and helped to alleviate cost pressures, but guidance was for prices to trough close to current levels. 
    2. SPH has also derived other income by hosting events (e.g. ST Run, Jubilee Walk) to buffer the fall in earnings, but some of these are linked to SG50 festivities and are unlikely to repeat ahead. 
  • In view of this, we expect a 3-5% decline in operating profit in FY16-17. 

■ Risk of more dividend cuts 

  • DPS has been cut by 1-2 Scts per year since FY13 and we continue to expect further cuts in DPS going forward. 
  • Dividend payout ratios are becoming increasingly stretched, with the 20 Scts DPS declared in FY15 implying a 102% payout ratio. 
  • Given the declining core media earnings and lack of meaningfully-accretive investments to counter the decline, we think dividends continue to be at risk. 

■ Maintain Reduce 

  • We maintain our Reduce call on SPH, with a SOP-based target price of S$3.85. 
  • We prefer SPOST, which offers a slightly lower yield of 4% but has earnings re-rating potential.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 3.85 Same 3.85