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.

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.

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.

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.

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).

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

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