SPH
SINGAPORE PRESS HLDGS LTD
T39.SI
Singapore Press Holdings (SPH SP) - 3QFY16: Core Earnings Down 20%; Dividend Cut Likely For FY16
- Results were below expectations, coming in at S$52.7m, down 46% on an unexpected impairment of S$28m for its magazine business.
- Excluding one-offs, core net profit was S$80m, down 20% yoy.
- The media business continued to languish, with the recent cover price hike providing a minimal uplift.
- Expect a dividend cut of 15-20%.
- Reduce FY16-18 earnings forecasts by 17-20% to reflect the impairment charges.
- Our target price has fallen to S$3.80 as a result. Maintain HOLD. Entry price: S$3.60.
RESULTS
3QFY16 net profit below expectations on S$28m impairment charge.
- Singapore Press Holdings reported worse-than-expected 3QFY16 net profit of S$52.7m, down 46% yoy.
- For 9MFY16, net profit of S$188.1m represented 60% of our full-year forecast. The result was impacted by a 7.1% decline in media revenue, a 22% decline from investment income, as well as S$28.4m in impairment charges mainly for the magazine business.
- Excluding the impairment charges and one-offs, core net profit was S$80m, down 20% yoy against the prior period.
Media business revenue down 7.1% yoy, reflecting continued business deterioration.
- The decline was led primarily by a S$15.7m decline in advertising revenue, down 9.2% yoy.
- The decline was as expected, reflected by the lower page count growth we had highlighted a month earlier.
- The impact of higher newspaper cover prices implemented on 1 Mar 16 was muted, with circulation revenue almost flat at +1.6%.
Property segment resilient; investment income sharply down.
- The property segment reported stable revenue of S$60.3m, up 1.6% yoy on higher rental and services revenue.
- Investment income plunged 22% owing to lower dividend income and lower gains from sale of investments. This was cushioned by higher forex gains as well as hedges for portfolio investments.
EBITDA continues to deteriorate.
- EBITDA for the period fell 17% yoy to S$107m, from S$128m in 3QFY15, reflecting the steady deterioration of the business’s cash generating ability.
- As a recap, SPH’s EBITDA has fallen by 8.6% per year since 2010, on top of steadily declining EBITDA margins (FY10: 48%, FY15: 38%, 9MFY16: 36%).
STOCK IMPACT
Dividend cut of 15-20% likely.
- SPH will likely cut its dividend sharply this year. With this poor result and barring further earning shocks, the FY16 dividend payout is estimated at 16-17 S cents, representing a 15-20% decline from 20 S cents paid for FY15. This assumes up to 100% payout, rounded down to the nearest whole number as SPH traditionally does.
Dividend payout could be managed to soften impact.
- It is possible that SPH manages the situation by paying higher than its traditional 100% payout ratio. A larger-than- expected property revaluation gain will also help soften the dividend cut.
EARNINGS REVISION/RISK
Lowering FY16 core earnings forecast by 17%.
- We cut our FY16 core earnings by 17% from S$312m to S$260m, primarily as a result of the impairment charge, offset by fair value gains from investment properties (FY15: S$36m), which we pencil in S$35m.
- SPH typically recognises investment property revaluation gains in 4Q, though we note that this has declined from S$199m in FY12 to S$36m as of FY15.
Adjusting FY17-18 earnings forecasts downwards by 18-20%.
- Post an in-depth review of the previous analyst’s earnings assumption, we lower our FY17-18 earnings forecasts by 18% and 20% respectively on a revision of the business’ cost base.
Dividend yield of ~4% is mildly attractive.
- Based on our current estimates, dividend yield falls to 3.9-4.2% at current price levels. While decent, a continued deteriorating business outlook will likely challenge the payout amount in years to come.
VALUATION/RECOMMENDATION
Maintain HOLD; target price lowered to S$3.80.
- Our revised SOTP target price is revised downwards to S$3.80, from S$3.90 previously. With its dividend likely to trend downwards over time as the business outlook deteriorates, share price will follow suit to maintain the yield.
- With only a 6.6% downside from the last traded price of S$4.07, maintain HOLD on the counter. However, we caution that the stock could fall to S$3.20- 3.40 should the market peg it to its traditional 5% yield.
SHARE PRICE CATALYST
- None.
Foo Zhiwei
UOB Kay Hian
|
Andrew Chow CFA
UOB Kay Hian
|
http://research.uobkayhian.com/
2016-07-18
UOB Kay Hian
SGX Stock
Analyst Report
3.80
DOwn
3.90
