Singapore Press Holdings (SPH SP) - UOB Kay Hian 2018-01-15: 1QFY18 Media Revenue Decline Slows On Stronger Retail Advertising

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2018-01-15: 1QFY18 Media Revenue Decline Slows On Stronger Retail Advertising SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - 1QFY18 Media Revenue Decline Slows On Stronger Retail Advertising

  • Singapore Press Holdings (SPH)’s 1QFY18 core net profit was in line with our expectations, down 12% yoy on lower advertising and circulation revenues, partly offset by cost savings from a lower staff headcount. 
  • Advertising revenue’s drop slowed on strengthening adspend from retail. The coming quarters may see property advertising rise on the back of a buoyant property market. This might be tempered by rising newsprint costs. 
  • We tweak 2018-19 earnings forecasts by 0-2%. Maintain SELL and target price of S$2.42.



RESULTS


Core net profit down 12% yoy on weaker media revenue. 

  • Singapore Press Holdings (SPH) reported headline 1QFY18 net profit of S$60.4m (+32% yoy) on lower staff costs and absence of both impairments and fair value losses on derivatives. This was despite media revenue declining 13.9% yoy (+1% qoq) on lower advertising and circulation revenues. 
  • Excluding one-off staff restructuring charge and gains from disposal of investment and dilution of interest in an associate (from IPO listing), core net profit was lower at S$57.4m (-12% yoy, -22% qoq). 
  • Results were in line with our expectations, forming 27% of our full-year estimate. SPH’s first and third quarters are seasonally stronger, with these quarters typically making up 27-29% of our full-year estimate.

Print revenue decline decelerating. 

  • The core media division saw lower revenue on the back of weaker print revenue (-17% yoy). All segments (display, classified, magazines and others) saw turnover fall by 13-18% yoy. Circulation revenue fell 7% yoy despite stable circulation numbers, helped by higher digital subscriptions. 
  • The decline in advertising revenue picked up qoq on the back of a strengthening of the retail segment.

Cost reductions making an impact. 

  • SPH saw staff costs fall 5% yoy as it achieved its 10% headcount reduction target. Excluding headcount from new acquisitions, staff strength stood at 3,783 vs 4,182 in Aug 16. Annualised unit cost per headcount was lower at S$80,000 (-9% yoy). 
  • Headcount is expected to increase slightly from current levels as SPH hires for its digital initiatives, but we do not expect a significant uptick in staff costs.

Net current liability. 

  • As of end-1QFY18, SPH entered into net current liability as certain bank loans will come due within the next 12 months. SPH is expected to tap into its various financing options to refinance these loans, which might result in a small uptick in financing expense in the short term.


STOCK IMPACT


Advertising revenue decline to slow in coming quarters. 

  • The media segment saw a slowdown in revenue decline due to the pick-up in retail adspend which is expected to continue. 
  • The recent spate in property en-blocs entails future launches, and SPH is expected to benefit from higher advertising of new property launches. This was not evident in its 1QFY18 results, and is likely to manifest itself in the coming quarters.

Rising newsprint costs to dampen bottom-line improvement. 

  • Newsprint prices are on the uptrend, rising from 487 to 490 on the closure of US paper mills. The impact of higher newsprint price typically takes 6-9 months to filter down to SPH’s bottom line, so we are not overly concerned in the near term. 
  • Future quarters could see operating margin come under pressure should the uptrend in newsprint price continue.


EARNINGS REVISION/RISK


Tweak 2018-19 earnings by 0-2% on lower staff costs. 

  • We tweak our earnings forecasts on lower staff costs, which were partially offset by increasing our assumption for print revenue decline to -12% (previously -10%). This takes into account the sharper quarterly drop in print revenue, balancing it with higher adspend from property in the coming quarters. 
  • Our revised 2018-19 net profit estimates are S$214m (+2%), S$204m (+0%) and S$206m (+1%) respectively.


VALUATION/RECOMMENDATION


Maintain SELL and target price of S$2.42. 

  • Our SOTP target price rises a tad to S$2.47 after our changes. Given the 2% variance, we leave our target price unchanged at S$2.42
  • The media business continues to be valued on a DCF basis with negative terminal growth of 1% and WACC of 6.17%. Current SPH share price implies 19.8x forward PE, which is higher than its long-term mean of 18.5x PE over 2000-17. 
  • Downside risk to forward dividend yield of 4.9% exists due to the uncertainty over how the special dividend is paid out, which makes up 39% of our 13 S cents estimate. Despite the smaller downside, we reckon SPH’s share price will continue to slip until evidence of positive developments manifests. 
  • Maintain SELL.







Foo Zhiwei UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-15
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 2.420 Same 2.420



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