Singapore Press Holdings SPH - CIMB Research 2018-01-14: Easing Pressure

Singapore Press Holdings - CIMB Research 2018-01-14: Easing Pressure SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Easing Pressure

  • SPH's 1Q18 core net profit of S$57m formed 26%/27% of our/consensus full-year numbers.
  • Structural headwinds remain unabated, but we saw 1Q18 media revenue of S$174m stabilise on a qoq basis (-13.9% y-o-y).
  • Apart from S$11.6m retrenchment costs (which we expected) and S$15m divestment gain, there was no further impairment on SPH’s media business.
  • SPH's share price lost 25% since the start of 2017. Upgrade from Reduce to HOLD as we think the downside has largely been priced in, with c.5% dividend yield.
  • Likely to turn positive upon successful execution of strategy for media disruption.

1QFY18 core net profit in line, falling 7% yoy 

  • SPH reported 1QFY8/18 headline profit of S$60.4m (+32.1% yoy), which was slightly above our/consensus full-year forecasts. 
  • Excluding one-off items such as S$11.6m retrenchment costs, S$5.9m gain on dilution of interest in associate (upon Mindchamps Pre-School’ listing) and S$9.1m net profit on disposal of investments this quarter, 1Q18 core net profit would have fallen 7% y-o-y, but we deem this in line with our/consensus expectations.

Signs of an improving outlook Slower decline in the media business 

  • In 1QFY18, SPH’s top-line for the media segment continued to fall 13.9% y-o-y, led by a decline across display, classifieds, magazines and circulation. However, a deeper look at its segmental numbers revealed that such y-o-y decline has tapered off slightly, with stability on a q-o-q basis. 
  • Display ads’ revenue was up 4.2% q-o-q, which we attribute to the broader economic recovery in Singapore and spillover effect from improved sentiment. 
  • While such an economic recovery could be sustained in the near-term, we think SPH needs a stronger solution to its media disruption before a share price re-rating can take place, to which management stated that it plans to roll out new products. 
  • We project FY18-20F media revenue to decrease at a gradual pace of 4-6% y-o-y, compared to a 7-13% y-o-y drop over FY15-17.

Impairment took a breather in 1QFY18 

  • Apart from falling ads, the challenging media environment also took a hit on SPH’s books, as it recorded a series of impairments on its media investments since FY13, totalling S$137m YTD. 
  • While we saw an increase in the value of intangible assets in FY17, this is mainly due to S$79m goodwill from the acquisition of Orange Valley Healthcare (OVH) in 2017. We think the risk of impairment on this asset is low at this juncture, given the stable healthcare asset, barring any adverse regulatory change. 
  • In 1QFY18, we saw a reversal of this trend, with SPH recognising total gain of S$15m and minimal impairment of investments.

Upgrade from Reduce to HOLD 

  • With the media outlook showing some signs of stabilisation, and the share price correcting c.5% YTD (and 25% since the start of 2017), we think the risk-reward ratio now looks more favourable. 
  • We adjust our FY18-20F EPS slightly by 0.4- 1.3%, and assign a smaller discount of 10% (previously 15%) to our SOP-based target price, which increases to S$2.49, implying 18.6x FY19F P/E. 
  • Our SOP valuation also includes the recently-listed associate company (Mindchamps Pre-School).
  • Upgrade SPH from Reduce to HOLD, with a 5% dividend yield as share price support.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2018-01-14
CIMB Research SGX Stock Analyst Report HOLD Upgrade REDUCE 2.49 Up 2.380