SPH - DBS Research 2016-07-18: Ad spend still a key drag on earnings

SPH - DBS Research 2016-07-18: Ad spend still a key drag on earnings SPH SINGAPORE PRESS HLDGS LTD T39.SI 

SPH - Ad spend still a key drag on earnings

  • 3Q16 results in line, lower ad spend continues to drag core operating profit
  • Economic growth outlook remains weak
  • Quality of earnings, DPS remains under pressure
  • Maintain FULLY VALUED, TP S$3.50

3Q16 earnings in line. 

  • Core operating profit for 3Q16 was S$97m (-14% y-o-y), in line with expectations. Revenue declined 5% y-o-y to S$292m while core expenses remained flat at S$195m. 
  • Headline net profit was S$52.7m which included impairment charges to the magazine business amounting to S$28.4m. 
  • Core net profit would have been S$81m (-17.5% y-o-y) excluding these charges.

Media segment continues to lead revenue decline. 

  • The key drag to 5% drop in revenue was led by the media segment. 
  • Display advertisement revenue declined by 12% to S$83m, while Magazine segment fell 13% to S$28m. Classified advertisements remained relatively flat at S$45m. 
  • Circulation revenue improved 1% to S$46m contributed in part by S$0.20 increase in news stand prices for Straits Times and Sunday Times with effect from 1 March 2016. Other media revenue declined 8% to S$15m.

Property revenue improved marginally. 

  • Property revenue was S$60m, improving marginally from S$59.4m from 3Q15. Portfolio NPI was up by 2.9% to S$46m (Seletar Mall +5.5%, Paragon +2.0%, Clementi Mall +0.6%). 
  • Occupancy at all three malls (Paragon, Clementi Mall and Seletar Mall) remained relatively full with Paragon and Clementi Mall at 100%. 
  • Rental reversion for Paragon and Clementi Mall were 4.9% and 4.5% respectively.

Other revenue also improved. 

  • Other revenue improved 2.5% y- o-y to S$14.7m on the back more exhibitions and online classified business.

Core expenses flat. 

  • Operating expenses were flat at S$195m. Savings in materials and consumables and broadcasting costs, and other operating expenses were offset by higher staff costs and premises costs. 
  • Monthly newsprint consumption charge-out rates were relatively lower. Headcount declined by 1.6% to 4,229, but average wage per staff increased by 4% to S$22.1m for 3Q16.

Cautious on adspend outlook. 

  • We maintain our view on a more pessimistic adspend outlook. Our economics desk’s outlook for Singapore’s GDP is modest at 1.5% this year and 1.9% next year. 
  • We see lacklustre economic growth leading to lower adspend. Advertising volumes and adspend will therefore be under pressure. This should put pressure on earnings outlook and DPS payout going forward.

Maintain FULLY VALUED, TP S$3.50. 

  • We lower our FY16F earnings marginally by 3% to account for lower revenue and higher costs. No change to our FY17-18F earnings forecasts. Maintain FULLY VALUED and S$3.50 TP.

Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-18
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