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
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http://research.itradecimb.com/
2016-04-12
CIMB Securities
SGX Stock
Analyst Report
3.71
Down
3.61
