SPH (SPH SP) - DBS Research 2018-01-15: EBIT Margin Supported By Lower Costs

SPH (SPH SP) - DBS Vickers 2018-01-15: EBIT Margin Supported By Lower Costs SINGAPORE PRESS HLDGS LTD T39.SI

SPH (SPH SP) - EBIT Margin Supported By Lower Costs

  • Singapore Press Holdings (SPH)'s 1Q18 results in line, ad spend continues to decline but at a slower rate.
  • EBIT margin improved on lower staff, newsprint and retrenchment costs.
  • Expect operating earnings to be supported by lower staff costs.
  • Maintain HOLD with S$2.78 Target Price based on Sum-Of-The-Part valuation.

What’s New 

1Q18 earnings in line. 

  • Core operating profit for 1Q18 was S$76.7m (-2.1% y-o-y), in line with expectations. 
  • Revenue declined 7% y-o-y to S$259m while cost of sales declined by 5.3% and operating expenses fell by a stronger 22.6% y-o-y. This led to a 1.4ppt improvement in EBIT margins to 29.6%. 
  • Headline net profit was S$60.4m (+32.1% y-o-y), largely due to better investment income performance of S$12.4m versus S$1.8m loss in 1Q17.

Lower revenue led by lower advertising revenue. 

  • The Media Segment’s revenue fell 14% y-o-y, as a result of lower advertising revenue of S$121m (-16.7%). 
  • Property revenue remained stable at S$61.2m while other businesses grew 48.2% y-o-y to S$23.6m from a low base of S$15.9m.
  • Display (-17.9% y-o-y), classified (-12.5% y-o-y) and newspaper ad revenue (-16.3% y-o-y) declined at the slowest rate in the last five quarters.

Lower costs, slightly better EBIT margin. 

  • Most cost items were lower, led by lower newsprint costs, bonus provision, depreciation and retrenchment costs. 
  • Net operating expenses hence declined by 8.8% y-o-y to S$182.4m leading to EBIT margin improvement.

Maintain HOLD, TP S$2.78. 

  • We expect FY18F DPS to be maintained at 15 Scts. The declining ad spend outlook should be mitigated by staff rationalisation, which would help to support operating earnings and DPS. 
  • We leave our earnings estimates and Target Price largely unchanged. 
  • Maintain HOLD and S$2.78 Target Price.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2018-01-15
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.78 Down 2.790