Singapore Press Holdings - CIMB Research 2017-01-13: Hit by restructuring and fair value losses

Singapore Press Holdings - CIMB Research 2017-01-13: Hit by restructuring and fair value losses SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Hit by restructuring and fair value losses

  • Singapore Press Holdings (SPH)’s 1QFY17 net profit of S$45.7m was below expectations at 18% of our and consensus full-year forecasts due to higher expenses and fair value loss on hedges.
  • SPH incurred S$15.9m in one-off charges due to its review of the media business, impairment for a printing press line and impairment on an associate.
  • Media operating trends worsened, with newspaper ad revenue falling 15% yoy.
  • The property segment remained stable, while other businesses did better on higher exhibitions revenue.
  • Maintain Reduce, with a lower SOP-based target price of S$3.31.

Earnings miss on one-off charges and fair value losses 

  • SPH reported a 1QFY17 net profit of S$45.7m (-30% qoq, -44% yoy), falling short of our forecast due to: 
    1. one-off charges of S$15.9m for the review of the media business and impairment of an associate, and 
    2. a S$1.8m net loss from investments due to fair value loss on hedges for portfolio investments with the stronger US$. 
  • Excluding the S$15.9m in one-off charges, operating profit would have risen 12% qoq and fallen 12% yoy, largely dragged by lower advertisement revenue.

Media business review aims to lay off staff to cut costs 

  • SPH embarked on a review of its media business in view of the structural challenges in the industry. The S$15.9m in one-off charges include: 
    1. S$7.2m in retrenchment and outplacement benefits as part of a right-sizing exercise which aims to cut its workforce by 10% over two years, 
    2. a S$2.6m impairment charge on a printing press line due to capacity optimisation, and 
    3. a S$4.8m impairment charge for the restructuring of an associate in the video business. 
  • Total headcount fell 2% qoq to 4,107 at end-Nov.

Newspaper ad revenue declined at a record pace 

  • Media revenue fell 1% qoq and 9% yoy, still dragged by lower ad revenue (+0.3% qoq, - 14% yoy). In particular, newspaper ads declined at a faster rate of 15% yoy (4QFY16: - 12.5% yoy), with display ads falling 16% yoy (4QFY16: -14.4% yoy) and classified ads falling 12.5% yoy (4QFY16: -8.6% yoy). 
  • Circulation revenue fell 4% qoq but grew 1% yoy with the help of the cover price increase for its newspapers. 
  • While SPH previously benefited from lower materials cost, rising newsprint prices could limit the cost savings.

Properties saw positive rental reversions; higher other income 

  • The property segment remained stable, with revenue growing 0.5% qoq and 1.3% yoy, while PBT (ex-fair value gains) grew 1.6% qoq and 4.4% yoy as both Paragon and Clementi Mall saw positive rental reversions and better NPI margins. 
  • Other businesses saw a marked improvement, with revenue growing 22% qoq and 18% yoy on higher revenue from exhibitions, and its PBT improved to -S$1.2m (4QFY16: -S$5.4m, 1QFY16: -S$2.2m).

Maintain Reduce 

  • We maintain Reduce, given no signs of a turnaround in the media business. 
  • We cut our FY17F EPS by 8% to account for the charges related to the media business review, but raise our FY18-19F EPS by 4-7% as we factor in the lower headcount as a result of the right-sizing exercise. 
  • Our SOP-based target price falls to S$3.31 as a result. 
  • Upside risks to our call could come from a lifting of property cooling measures or improvement in business sentiment, which would lead to higher demand for newspaper ads.

Jessalynn CHEN CIMB Research | http://research.itradecimb.com/ 2017-01-13
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 3.31 Down 3.350