SPH
SINGAPORE PRESS HLDGS LTD
T39.SI
Singapore Press Holdings (SPH SP) - Possibly A Smaller Advertising Revenue Contraction in 2QFY16
- We expect a smaller yoy advertising revenue contraction in 2QFY16 (1QFY16: -11.9% yoy). We see the cover price increase as a measure to mitigate rising operating costs as SPH has cut its media-related costs to the bones.
- We see no share price catalyst and continue to expect flat price performance.
- Average annual dividend yields of 5% over FY16-18 remain attractive in the still-low interest rate environment.
- Maintain HOLD with our target price raised to S$3.90. Entry price: S$3.60 and below.
WHAT’S NEW
First total ad pages growth of 3.9% since 4QFY11.
- Our page monitor of The Straits Times points to a growth of 3.9% yoy in 2QFY16 for total ad pages. This is the first quarterly growth since a decline that started in 4QFY11. Recruitment ads saw a 6.7% decline yoy, but classified ads rose 24.2% yoy while display ads rose 9.1% yoy.
Possibly a smaller advertising revenue contraction in 2QFY16.
- While our pagecounts indicate ad growth, we still expect Singapore Press Holdings (SPH) to report a contraction in newspaper advertising revenue (AR). However, the contraction is likely to be smaller than 1QFY16’s large 11.9% contraction, which was greater than the -2.4% implied by our page-counts.
- While our page-counts are still good in predicting the general trend in ad-spend, actual contraction figures are markedly larger. This could be due to discounts offered in the current difficult economic environment.
Impact of higher cover charges effective 1 March.
- We project annual circulation revenue of S$160m from the sale of newspapers and subscriptions.
- A 20% (+20 cents) increase would imply S$32m in additional revenue, but we expect an initial knee-jerk cutback in consumption that would dampen the revenue impact. Assuming a 10% fall in circulation, the net impact to revenue would be an increase of S$16m. Net profit would increase by S$13m, or 4% of our FY17 S$312m forecast.
- As people get used to higher cover prices over time, circulation volume should recover but operating costs are always rising.
STOCK IMPACT
Higher cover charges are more likely to offset rising costs.
- Newspaper AR remains weak, having registered multi-year contractions. It contracted 11.9% yoy in 1QFY16 (4QFY15: -8.4% yoy), which was much larger than our earlier expectation of -5% yoy.
- Thus far, earnings have been shored up by cost cuttings and higher property earnings. Despite 1QFY16’s large AR contraction, operating profit of S$99m in 1QFY16 dipped only 3% yoy. Adspend has been affected on many fronts.
- We see the cover price increase as a measure to mitigate rising operating costs as SPH has already cut its media-related costs to the bones.
- Further cuts will likely affect the quality of its newspapers.
EARNINGS REVISION/RISK
Maintain earnings forecasts.
- We keep our FY16 net profit forecast of S$304m unchanged, which assumes an 8% AR contraction.
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.
- Singapore’s low economic growth has led to:
- cautious adspend by retailers as locals become increasingly savvy in e-commerce, and
- weakening rentals in the Orchard Road area, which have declined 4.3% since 4Q14.
- This has been offset by relatively resilient suburban rentals which have remained unchanged between 4Q13 and 3Q15; a 1.3% yoy decline was noted in 4Q15.
- With the upcoming re-opening of 1 Sengkang Mall with 270,000sf of space, we expect some downward rental pressure on Seletar Mall.
Dividend yield remains attractive.
- SPH’s AR is expected to perform in tandem with Singapore’s GDP growth, which is projected at 2.7% and 3.2% for 2016 and 2017 respectively.
- We do not see a share price catalyst. However, annual dividend yields of c.5% over FY16-17 present an attractive yield proposition in the continued low interest rate environment.
VALUATION/RECOMMENDATION
Maintain HOLD.
- We tweak our SOTP target price upwards to S$3.90, adjusting for the change in market value of SPH Reit since our last report.
- Recommended entry price is S$3.60 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
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http://research.uobkayhian.com/
2016-03-22
UOB Kay Hian
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