Singapore Press Holdings - OCBC Investment 2018-01-17: Near-term Reprieve For Ad Spending

Singapore Press Holdings - OCBC Investment 2018-01-17: Near-term Reprieve For Ad Spending SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Near-term Reprieve For Ad Spending

  • Operating revenue dropped 7.0% YoY.
  • Improved retail ad spend.
  • Fair Value estimate revised to S$2.51.

1QFY18 PATMI grew 32.1% YoY 

  • Singapore Press Holdings (SPH)’s 1QFY18 results were broadly within expectations. 
    • Operating revenue fell 7.0% YoY to S$258.8m, on the back of a 13.9% YoY drop in media revenue. This was on the back of 16.7% and 7.3% YoY drops in advertisement and circulation revenues, respectively. 
    • The property segment delivered revenue growth of 1.2% YoY to S$61.2m, on the back of higher rental income from the group’s retail assets. 
    • The group also clocked in revenue growth of 48.2% YoY from its other businesses, especially from its aged care business. 
    • We note that operating costs have dropped 5.5% YoY to S$199m, with staff costs falling 4.9% YoY to S$85.8m, on the back of a decrease of 7.9% in headcount (excluding new acquisitions) as at end-November. 
    • Average newsprint charge-out prices have been increasing over the last 2 quarters (from US$484 to US$490), and we believe this should exert some pressure on margins moving forward. 
    • This quarter also saw a gain of S$5.9m being registered from the dilution of interest on Mindchamps PreSchool’s IPO listing, as well investment income of S$12.4m comprising primarily divestment gains. 
  • All in, PATMI grew 32.1% YoY to S$60.4m.

Short-term boost to ad revenue 

  • Disruption in the media business has been an ongoing theme, and 1QFY18 was no different. However, while newspaper ad revenue registered decreases across all 3 sub-segments (Display/Classified/Newspaper Ad) of between 12.5% and 17.9% YoY, we note that this negative variance has now narrowed on a YoY basis in comparison to the preceding quarters.
  • We understand that this was on the back of improved retail ad spend, while the recent enbloc fever (and resultant property launches) should grant further respite moving forward. However, we prefer to remain cautious and await the unfolding of further initiatives to reposition the media business. 
  • We adjust some of our assumptions, and value SPH’s Orange Valley Healthcare business at 20x FY18 PE, while applying a 20% RNAV discount to the group’s Bidadari site. We also apply a 10% conglomerate discount, and revise our fair value estimate downwards from S$2.93 to S$2.51. 
  • SPH currently trades at a 20.8x forward consensus PE, which is just about the 5-year average. Maintain HOLD.

Joseph Ng OCBC Investment | http://www.ocbcresearch.com/ 2018-01-17
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.51 Down 2.930