Singapore Press Holdings - CIMB Research 2017-07-15: 3QFY8/17 Impairment Resurfaces In Headlines

Singapore Press Holdings - CIMB Research 2017-07-15: 3QFY8/17: Impairment Resurfaces In Headlines SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - 3QFY8/17: Impairment Resurfaces In Headlines

  • We deem SPH's 3Q17 core PATMI of S$66.7m in line at 29% of our full-year forecast, excluding a S$37.8m impairment on the magazine business.
  • Still no end in sight for the media business weakness as 3Q17 revenue fell 15.7% yoy.
  • Maiden contribution by Orange Valley Healthcare saw 8.2% yoy growth in the others segment, offsetting lower revenue from the exhibition business in the quarter.
  • We see positives from SPH’s ongoing diversification efforts, and the possibility of more dividends from monetising its investments (M1 stake, Seletar Mall etc).
  • Our Hold rating is intact with a lower SOP-based target price of S$3.22 and 5% forecast dividend yield. Expect 4Q17F bottom line boost from 701Search stake sale.

3Q17 headline miss due to S$37.8m impairment charges 

  • 3Q17’s steady revenue from the property segment (+2.0%) and stronger contribution from the other business (+8.2%) were unable to mitigate the deteriorating media business (-15.7%), as overall operating revenue slid 10.8% yoy to S$260m. 
  • Results were further impacted by a one-off magazine-related impairment charge of S$37.8m, resulting in a 45.2% yoy decline in 3Q17 PATMI. Excluding these one-off items (including 1Q17’s S$15.9m), 9M17 core PATMI would have been in line with our full-year numbers at 80%.

Filling the (ad) pages in time to come 

  • Recovering sentiment in Singapore’s property market failed to revive the advertising market for SPH as we saw a double-digit yoy sales decline across all newspaper ads, classifieds and displays in 3Q17. The only positives were stable daily average newspaper circulation statistics and cost savings from newsprint price. 
  • We believe a stronger economic stimulus and transformation plan could target adex improvement and the media weakness in the medium term.

Maiden healthcare contribution by Orange Valley 

  • SPH’s 3Q17 topline also recorded the maiden contribution (1 month) of c.S$3m from its newly-acquired Orange Valley Healthcare, which partially offset lower revenue from its lumpy exhibition business. The increase in overall headcount from 2Q17’s 4,041 to 4,473 at end-3Q17 was mainly attributed to additional staff in the healthcare business. 
  • Ongoing efforts to diversify its income streams, through healthcare or property (recent successful tender of Bidadari mixed development) should bode well for SPH, in our view.

Associates/JV becoming less of a drag 

  • Narrowing losses from associates/JV since 1Q17, coupled with the recent stake sale of (loss-making) 701Search to Telenor ASA, and 3Q17’s contribution from a newly-acquired associate led us to believe that they will no longer be a drag in 4Q17F. 
  • We expect SPH to recognise a one-time gain of S$150m and receive cash proceeds of S$153m in 4Q17F from its completed stake sale of 701Search. This, together with potential sale of the M1 stake and spin-off of Seletar Mall, strengthens the case for potential special dividends.

Maintain Hold with lower SOP-based target price 

  • We adjust our FY17-19F sales forecasts to account for the healthcare contribution and lower media revenue against slightly lower operating expenses. 
  • Our FY17F EPS rises marginally by 0.2%, while FY18-19F EPS falls by 4.3-5.2%. Accordingly, our SOP-based target price falls to S$3.22 and our FY17-19F DPS dips to S$0.16 (prev. S$0.17) on lower core operating profit, still based on its historical 80-90% payout ratio. 
  • Maintain Hold. 
  • Changes in media outlook could pose upside/downside risks to our Hold call.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-07-15
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.22 Down 3.360