Singapore Press Holdings SPH - UOB Kay Hian 2016-07-18: 3QFY16 ~ Core Earnings Down 20%; Dividend Cut Likely For FY16

Singapore Press Holdings SPH - UOB Kay Hian 2016-07-18: 3QFY16 ~ Core Earnings Down 20%; Dividend Cut Likely For FY16 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 HOLD Maintain HOLD 3.80 DOwn 3.90


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