Singapore Press Holdings (SPH) - OCBC Investment 2017-09-21: Price Correction Overdone

Singapore Press Holdings - OCBC Investment 2017-09-21: Price Correction Overdone SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Price Correction Overdone

  • Expect c.S$150m sale profit in next quarter results.
  • Focus on cost control and diversification.
  • Fair value unchanged at S$3.25.

47% underperformance against STI since Jul 2016 

  • Since it announced 3QFY17 results that tracked below expectations on 14 July 2017, SPH's share price has dipped 15.4% to the last close of S$2.63. This cumulates to a 34.3% decline since 15 Jul 2016, which translates to a remarkable 47.3% underperformance versus the STI’s 13.0% appreciation over the period. 
  • While residual uncertainties continue to hang over the group’s core media business, we believe that the price correction is likely overdone at this point. 
  • We note that the 45.2% YoY decline in the group’s last reported 3QFY17 PATMI was primarily due to a sizeable one-time impairment (S$37.8m) related to the magazine business, without which the group’s recurring earnings would have declined only 19.2% YoY.

Actively controlling costs and diversifying earnings 

  • Notwithstanding continued pressures on the group’s media business due to industry disruption and unfavourable market conditions, the management team has actively sought to implement cost-side controls with some success. Excluding the impairment charges last quarter, total costs would have fallen 6.7% YoY despite inflationary pressures. 
  • Significant efforts have also been made to diversify earnings with their recent acquisition of Orange Valley Healthcare and the recent winning tender for a mixed site at Bidadari with JV partner Kajima Development Pte Ltd. 
  • The group’s property segment also continues to put up solid numbers, with segment revenues up 2% YoY over the last quarter on the back of higher rental income. 
  • Finally, given that SPH completed the sale of 701Search on 30 June 2017, we expect the group to recognize a profit of c.S$150m from the divestment in the next quarter’s results to be reported in mid Oct 2017.
  • We leave our fair value estimate unchanged at S$3.25; upgrade SPH to BUY on valuation grounds.

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-09-21
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