Singapore Press Holdings SPH - UOB Kay Hian 2015-12-14: Ad Revenue Contracts In 1QFY16, Albeit At A Slower Rate

Singapore Press Holdings SPH - UOB Kay Hian 2015-12-14: Ad Revenue Contracts In 1QFY16, Albeit At A Slower Rate SPH SINGAPORE PRESS HLDGS LTD T39.SI 

Singapore Press Holdings (SPH SP) - Ad Revenue Contracts In 1QFY16, Albeit At A Slower Rate 

  • SPH’s advertising revenue continues to contract, albeit at slower rate. Our page monitor of The Straits Times points to ad spend contraction of 2.4% yoy in 1QFY16 (4QFY15A: -8.4% yoy). 
  • We see no share price catalyst and continue to expect a flat share price. 
  • Average annual dividend yields of 5.0% over FY16-18 are attractive in the still-low interest rate environment. 
  • Maintain HOLD with an unchanged target price of S$4.10. Entry price: S$3.70 and below. 


WHAT’S NEW 


 Advertising revenue continues contraction, albeit at a slower rate. 

  • Our page monitor of The Straits Times points to a 2.4% decline in 1QFY16 for total ad pages. 
  • Recruitment ads saw a 9.7% decline yoy, Classified ads saw a 10.5% improvement yoy while 
  • Display ads saw a 4.5% decline yoy. 
  • Except for Display ads, the changes represent an improvement from 4QFY15. 
  • Over a five-year basis, 1QFY16 continued the trend of a structural decline in print ads. 

 Tourist arrivals up 3.0%, on low-base effect. 

  • Latest tourism data - available up to Sep 15 - points to a 3.0% increase in total tourist arrivals on a low-base effect. The previous period (Sep 14) reported a 6.6% yoy decline, driven by large declines in tourist arrivals from China. 
  • The top three visitor countries (Indonesia, Malaysia and China) reported a - 9.2%, -6.1% and +41.7% yoy change respectively. China’s large jump was attributable to a low-base effect, having previously fallen -40.9% yoy in Sep 14. 


STOCK IMPACT 


 Expect marginally weaker ad revenue (AR) for 1QFY16. 

  • We expect SPH to report a marginally lower AR for 1QFY16. Our page monitor serves as a good proxy to SPH’s AR. Prior periods 1QFY15-4QFY15 reported a total page count decline of -7.0%, -5.4%, - 1.5% and -1.6% for each respective quarter, vis-à-vis Print revenue change of -8.1%, - 3.0%, -5.5% and -4.2% for the same respective periods. 
  • We maintain our estimate of a 5% revenue decline for FY16. 

 Focus is on cost cutting and new initiatives. 

  • With the print media business in a structural decline, we expect SPH to rein in costs on that front and divert its attention towards new business initiatives. 
  • The weak tourist arrival numbers have two effects: 
    1. cautious adspend by retailers due to lower tourist spend and locals becoming increasingly savvy in e-commerce, 
    2. weakening rentals in the Orchard Road area, which have declined 2.9% since 4Q14. 
  • The Paragon Mall is exposed to tourist spend. However, this is offset by relatively resilient suburban rentals, which have remained unchanged since 4Q13. 

 Flat share performance, dividend yield remains attractive. 

  • SPH’s AR is expected to perform in tandem with Singapore’s GDP growth, which is projected at 2.0% and 2.7% for 2015 and 2016 respectively. 
  • We do not see a share price catalyst. However, annual dividend yields of 5.0% over FY16-18 present an attractive yield proposition in the continued low interest rate environment. 


EARNINGS REVISION/RISK 


  • We keep our earnings forecasts unchanged. Weaker-than-expected AR remains a key risk. 


VALUATION/RECOMMENDATION 


 Maintain HOLD. 

  • Our target price of S$4.10 is based on a SOTP valuation. Recommended entry price is S$3.70 and below. 


SHARE PRICE CATALYST 


 Share price catalysts are lacking. 

  • Traditionally, earnings performance has a good correlation to advertising revenue growth.



Nancy Wei UOB Kay Hian | http://research.uobkayhian.com/ 2015-12-14
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 4.10 Same 4.10


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