SPH - DBS Research 2017-01-16: Declining advertising revenue

SPH - DBS Vickers 2017-01-16: Declining advertising revenue SINGAPORE PRESS HLDGS LTD T39.SI

SPH - Declining advertising revenue

  • 1Q17 earnings below as adex remains lacklustre.
  • Ad revenue declines by 12-16%.
  • Cut FY17-18F earnings by 4-5%.
  • Maintain FULLY VALUED and lower TP to S$3.32.


  • We maintain our FULLY VALUED recommendation for SPH. 
  • We see that advertising expenditure will remain under pressure on the back of a flat GDP growth forecast of 1.3% for 2017. We anticipate that core print ad revenue will remain weak, dragging earnings and DPS. 
  • At the current share price, valuation at 24.7x PE and 4.6% yield are unattractive given the poor earnings outlook.

1Q17 results below expectations. 

  • Headline earnings were below expectations at S$45.7m (-43.8% y-o-y). This was largely dragged by 
    1. decline in advertising revenue, and 
    2. investment losses resulting from hedging losses due to the USD appreciation. 
  • Revenue declined by 6% y-o-y to S$278.3m as ad revenue for the various sub-segments (classifieds, newspaper and display ads) fell by 12-16%. 
  • Operating costs were also a tad higher (2.8% y-o-y) due to manpower restructuring costs and impairments, offset by lower newsprint prices.

Anticipate weak adspend environment on flat GDP outlook. 

  • Our 2017 forecast for Singapore’s GDP from our economics desk is 1.3%, rather flattish from 1.2% in 2016. We also note that Singapore’s industry adex remains weak, declining by 13-18% y-o-y from September to November. 
  • The downward pressure on adspend has led us to trim our FY17-18F earnings by 4-5% as we assume that adex revenue will fall by 7%, from -5% previously.

Valuation: TP of S$3.32 based on sum-of-parts. 

  • Our target price of S$3.32 is based on sum-of-parts valuation. 
  • We value SPH's core newspaper and magazine operations at S$1.38/share based on discounted cash flow model, SPH’s property business at S$1.38, and net cash and investments of SS$0.56 to derive our TP.

Key Risks to Our View

  • Ad ex reversal, disposal of investment stake and expectations of special dividends. A strong economic recovery and pick-up in consumption will lead to adex improvement, which is a key risk to our view. 
  • Sale of its investments, such as M1, could also lead to expectations of higher special DPS.

Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2017-01-16
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 3.32 Down 3.440