Singapore Press Holdings - CIMB Research 2016-07-15: Hit by goodwill impairment

Singapore Press Holdings - CIMB Research 2016-07-15: Hit by goodwill impairment SINGAPORE PRESS HLDGS LTD SPH T39.SI 

Singapore Press Holdings - Hit by goodwill impairment

  • 3QFY16 net profit was underwhelming due to a S$28m goodwill impairment for the magazine business. 9M formed 69%/66% of our/consensus full-year forecasts.
  • Media revenue disappointed, falling 7% yoy. Media PBT fell 56% yoy due to impairment charges, excluding which PBT would have fallen 18% yoy.
  • Property continues to support overall profits with steady contributions from Paragon, Clementi Mall and The Seletar Mall.
  • Maintain Reduce, with a lower SOP target price of S$3.58 as we cut EPS by 9-12% and roll forward to FY17.

Hit by impairment charges, but core performance still weak

  • 3QFY16 net profit came in at an underwhelming S$52.7m (-46% yoy) and operating profit fell a similar 42% yoy to S$60.8m. This was mostly due to a S$28.4m impairment charge on goodwill and intangible assets relating to the magazine business, given unfavourable market conditions. 
  • Excluding the impairment charges, operating profit would have been S$89.1m (-15% yoy), still 5% shy of our estimate on poorer contributions from display and magazine advertisements and newspaper circulation.

Media continues to suffer

  • Media revenue fell 7% yoy to S$217m, dragged by 12% yoy decline in display ad revenue and 13% yoy fall in magazine ad revenue. 
  • The only bright spot was classified ads, which saw a smaller 2% yoy decline (vs. 10-11% decline in the last three quarters). 
  • Media PBT fell 56% yoy to S$31.9m; excluding the impairment charges, PBT would have fallen 18% yoy to S$60.2m. The impairment charges in the magazine business point to further accelerated declines in earnings ahead.

Counting on property and sale of investments to prop up earnings

  • Property continues to be the steady contributor, with revenue up 2% yoy and PBT broadly flat yoy at S$37.6m on positive rental reversions at Paragon and Clementi Mall. 
  • SPH also recognised S$18.7m in net income from investments during the quarter, which likely came from the paring down of its holdings in the group investible fund, which shrank from S$1.3bn in 3QFY15 to S$1.1bn in 3QFY16.

Increased risk of dividend cuts

  • SPH typically pays out 90-100% of operating profit as dividends. With the S$28.4m impairment charge making up 9% of our new FY16 operating profit, we think there is a higher chance that dividends could be cut. 
  • SPH also previously benefited from lower materials cost as the newsprint charge-out price was on a downtrend, but that appears to have stabilised (3Q: US$479, 2Q: US$477), which removes an earnings buffer. 
  • We now expect DPS to fall to 17-18 Scts in FY16-18, translating to 94-96% payout ratio.

Maintain Reduce

  • We maintain a Reduce call on SPH, given signs of a worsening media business. 
  • We cut our FY16-18 EPS by 9-12% as we expect a faster rate of decline in newspaper and magazine advertisements, and our SOP target price falls to S$3.58 as a result. 
  • While SPH has been looked upon favourably for its yield, we think the risk of dividend cuts is real, especially with no signs of stabilisation in the core media business. 
  • The risks to our call include a recovery in the core business or successful ventures into new media.

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