Singapore Press Holdings - CIMB Research 2016-04-12: No big relief from newspaper price hike

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SINGAPORE PRESS HLDGS LTD SPH T39.SI 

Singapore Press Holdings - No big relief from newspaper price hike 

• 2QFY8/16 net profit of S$54.1m was in line. 1H formed 51% of our FY16 forecast. 
• Media revenue fell 6% yoy in 2QFY16, with advertisements -9% yoy and circulation -5% yoy. Media pretax profit (PBT) fell by a narrower 5% yoy on controlled costs. 
• 2Q property revenue was stable (+1% yoy) on positive rental reversion at Paragon and Clementi Mall. Property PBT fell 7% yoy on one-off property tax at Paragon. 
• Maintain Reduce, but with a higher SOP-based target price of S$3.71 after we raise FY16-18 EPS by 2-4% for the newspaper price hike effective 1 Mar. 

2QFY16 results in line; operating profit flat yoy 

• SPH reported 2QFY16 net profit of S$54.1m, down 22% yoy on: 
  1. lower gain on sale of investments, and 
  2. absence of S$7.4m gain on restructuring of its online classifieds business. 
• On the core business, 2Q operating profit was little changed yoy at S$68.1m. 
• Revenue fell 4% yoy but cost controls were put in place, resulting in OP margin rising to 26.3% (2QFY15: 25.2%). 
• Cost savings came from staff, materials and A&P expenses. 

Media revenue continues to slide, no sign of turnaround in ads 

• Media revenue fell 6% yoy in 2QFY16 to S$191m, dragged by ads (-9% yoy) and circulation (-5% yoy). 
• Ads continue to be affected by: 
  1. shift to digital, 
  2. property cooling measures, and 
  3. general market slowdown. 
• The only bright spot was car ads, as transactions picked up but were not enough to offset the fall in property ads (largest segment). 
• FY15 had the benefit of SG50 ads, which will be absent this year. 

Media PBT margin maintained but cost controls likely to taper off 

• Media PBT fell by a narrower 5% to S$39m in 2Q on controlled costs. As a result, 2QFY16 PBT margin was little changed at 20.5% (2QFY15: 20.4%). 
• We think most of the cost control measures have come through and there is little room to eke out more savings. 
• Management guided for stabilisation of newsprint prices at US$480-485/tonne in FY16 (2QFY16: US$477), thereby limiting materials cost savings (18% of total costs). 

Newspaper price hike to provide a little respite, but not much 

• SPH implemented an average newspaper price hike of 14% on 1 Mar. Similar to past price hikes, we think the impact on revenue will be lower than the effective price hike, as subscriptions face cancellation. The problem is worse now due to the shift to digital. 
• We expect 2-4% impact on FY16-18 EPS. Amid declining ads, the price hike could provide some respite. 
• Ads made up 53% of 2Q group revenue while circulation made up 15%. 

Properties saw positive SSSG; one-off property tax for Paragon 

• Property revenue rose 0.9% yoy to S$61.1m in 2Q on positive rental reversions at Paragon and Clementi Mall. Both malls saw positive SSSG despite falling Chinese and Indonesian tourist traffic. 
• Property PBT fell 7% yoy due to one-off retrospective property tax at Paragon for additional space created by AEIs that was not taxed previously. 

Maintain Reduce 

• We maintain a Reduce call on SPH, with SOP target price of S$3.71. We see headwinds from: 
  1. falling adex amid a slowing economic backdrop, 
  2. lower circulation volumes with the shift to digital, and 
  3. limited room for further cost cuts. 
• SPH’s share price has run up on the newspaper price hike but we think the impact on earnings will be limited.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-04-12

CIMB Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 3.71 Down 3.61