Singapore Press Holdings (SPH SP) - UOB Kay Hian 2016-09-02: 4QFY16 Page Count Falls; Expect Perpetual Advertising Revenue Pain

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2016-09-02: 4QFY16 Page Count Falls; Expect Perpetual Advertising Revenue Pain SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - 4QFY16 Page Count Falls; Expect Perpetual Advertising Revenue Pain

  • Our page monitor of The Straits Times sees 4QFY16 reverse into a 2.5% decline after two weak quarters of growth. 
  • Advertising revenue will suffer more steeply than the previous quarter, which already saw a 8.6% yoy decline. Advertising revenue is expected to continue falling, in tandem with its declining print circulation. 
  • No changes to our earnings estimate which has factored in a 8.5% yoy decline in print revenue. 
  • Maintain HOLD with unchanged target price of S$3.80.



WHAT’S NEW


4QFY16 total ad pages slip into 2.5% yoy decline. 

  • Our page monitor of The Straits Times points to total ad pages slipping into a decline of 2.5% yoy in 4QFY16. While 4Q has traditionally been a weak quarter, this is the lowest page count for 4Q since we started tracking in 2005. 
  • For FY16, total ad pages was also the lowest on record since 2005, reflecting the continued weakness in the economy, and as advertising shifts away from traditional print media.

Display and Recruitment ads down 6.0% and 14.6% yoy respectively. 

  • Underscoring the weakness in total ad page counts was the sharp 14.6% yoy decline in Recruitment ads, and a 6.0% yoy decline in Display ads. This more than offset the 17% yoy increase in Classified ads. 
  • Based on newspaper advertising expenditure (adex) statistics from AC Nielsen, June and July saw declines, with July seeing a sharp 17% yoy decline. This was probably due to a high base effect, as the period last year saw higher spending as a result of SG50. 
  • Data for Aug 16 is not out yet, but we expect double-digit declines.


STOCK IMPACT


Another sharp decline in advertising revenue. 

  • The previous quarter (3QFY16) saw total ad page count growth of 0.6% but a 8.6% decline in revenue. With 4QFY16 reporting a 2.5% decline in total ad page count growth, we expect the reported decline in ad revenue to be substantial. The decline has already been factored in our earnings estimates, which assumes a 8.5% decline in print revenue.

Downward trend in advertising revenue will continue. 

  • We expect the downward trend to continue without abate. SPH’s decline in print media readership likely discourages further ad spending in print media, in what is a structural decline of the business. Even if the economy were to bounce back, the decline in print readership will likely more than offset any incremental adspend.

Operating cashflow on the decline, potential dividend downside. 

  • The media business continues to be SPH’s primary cashflow generator. Its diversification into other businesses, such as property, has yet to supplant the media business. As such, operating cashflow will likely trend the decline in its media business. 
  • SPH is unlikely to pay beyond its ability to generate cash, and dividends might be at risk.


EARNINGS REVISION/RISK

  • No change to earnings forecast. Our FY16 earnings estimate of S$260m remains unchanged


VALUATION/RECOMMENDATION


Maintain HOLD with unchanged target price of S$3.80. 

  • Our SOTP target price of S$3.80 is derived from our DCF valuation of SPH (terminal growth: 0%), and the market value of its investment holdings. 
  • With the business on the general decline, and no turnaround catalyst in sight, we maintain a HOLD on the stock.


SHARE PRICE CATALYST

  • Nil




Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-09-02
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 3.800 Same 3.800


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