Singapore Press Holdings - UOB Kay Hian 2016-01-13: 1QFY16 ~For How Long Can It Hold The Fort?

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) 1QFY16: For How Long Can It Hold The Fort? 

  • Newspaper advertising revenue (AR) contracted by a whopping 11.9% yoy in 1QFY16 (4QFY15: -8.4% yoy). 
  • Group operating profit was shored up by higher property earnings and investment income, and lower associates’ contributions. 
  • While dividend yields of 5.2-5.5% are good, AR contraction is a major risk. 
  • Maintain HOLD and reduce our target price to S$3.85. Entry price: S$3.40 and below. 

RESULTS 


 Overall in line. 

  • Singapore Press Holdings (SPH) reported a net profit of S$81.3m for 1QFY16, up 17.3% yoy. This amounted to 27% of our net profit forecast of S$304m for FY16. 
  • Traditionally, 1Q of the financial year is seasonally SPH’s best quarter. 

 Large contraction in 1QFY16 advertising revenue is worrying. 

  • Newspaper advertising revenue (AR) contracted by a whopping 12% yoy with display AR down 13% yoy while classified AR fell 10% yoy. 
  • This was offset by aggressive cost cuttings - materials, production and distribution costs (-8%), depreciation (-13%) and interest expense (-13%) - and higher property earnings (+16% yoy), a surge in investment income (+614%) and lower associates’ losses (-78% yoy). 

 Property earnings were higher ...

  • ...because of the full impact of The Seletar Mall which commenced business on 28 Nov 14. 
  • Investment income of S$10.3m for 1QFY16 was higher yoy because investment income for 1QFY15 included a fair-value loss on forward hedges for portfolio investments. 
  • Associates’ losses were reduced by S$6.2m (-77% yoy) due to lower losses from the regional online classifieds business. 


STOCK IMPACT 


 For how long can it hold the fort? 

  • Newspaper AR remains weak. AR has registered a multi-year contraction. It contracted further by 11.9% yoy in 1QFY16 (4QFY15: -8.4% yoy), which was much larger than our expectation of -5% yoy. Thus far, earnings have been shored up by cost cuts and higher property earnings. 
  • Despite 1QFY16’s large AR contraction, operating profit of S$99m for 1QFY16 dipped only 3% yoy. 
  • Ad-spend has been affected on many fronts. The concern is for how long SPH can continue to shore up earnings if AR continues to contract. 

EARNINGS REVISION/RISK 


 FY16-18 forecasts relatively unchanged. 

  • We keep our earnings forecasts relatively unchanged, but cut our projected media earnings, given a 7% AR contraction assumption (-5% previously). This is offset by lower-than-expected associates’ losses. 
  • Weaker-than-expected AR remains a key risk. 

 Focus continues to be 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. 
  • Weak tourist arrival numbers have two effects: 
    1.  cautious ad-spend by retailers due to lower tourist spend and locals becoming increasingly savvy in e-commerce, and 
    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. 

 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 this as a share price catalyst. However, annual dividend yields of 5.2-5.5% over FY16-18 present an attractive yield proposition in the continued low interest rate environment. 


VALUATION/RECOMMENDATION 

  • Maintain HOLD. We lower our target price to S$3.85 from S$4.10, based on a lower SOTP valuation. Recommended entry price is S$3.40 and below. 


SHARE PRICE CATALYST 

  • Share price catalysts are lacking. Traditionally, earnings performance has a good correlation to AR growth.



Nancy Wei UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-13
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 3.85 Down 4.10


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