Singapore Press Holdings (SPH SP) - UOB Kay Hian 2018-03-14: Page Count Pressure On Advertising Continues Unabated In 2QFY18

Singapore Press Holdings (SPH SP) - UOB Kay Hian 2018-03-14: Page Count Pressure On Advertising Continues Unabated In 2QFY18 SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings (SPH SP) - Page Count Pressure On Advertising Continues Unabated In 2QFY18

  • Our page count for 2QFY18 showed total ads falling 12.7% y-o-y, a moderation from the -13.6% in 1QFY18. A decline of this magnitude historically translated to 16-22% y-o-y decline in quarterly print revenue, and we lower our assumptions accordingly.
  • With no fundamental improvements, a re-rating like its US-listed peers is unlikely.
  • We trim our 2018-20 earnings forecasts by 1-2%. Maintain SELL with a lower target price of S$2.39. 



WHAT’S NEW


Total page count decline moderated at -12.7% y-o-y. 

  • Based on our page count of Singapore Press Holdings’ (SPH) The Straits Times, total page count was down 12.7% y-o-y in 2QFY18 while the three segments (Recruit, Classifieds, Display) reported a 19%, 16% and 11% y-o-y decline in page counts respectively. 
  • The decline was driven primarily by the Display segment, which accounted for two-thirds of the total y-o-y decline on an absolute basis. The quarter’s decline represented a moderation from 1QFY18’s -13.6% yoy.


STOCK IMPACT


Larger-than-expected page count decline prompts downward revision of print revenue assumptions. 

  • A 12-13% y-o-y decline in quarterly page counts historically translated to 16-22% y-o-y declines in quarterly print revenue. Even with the likelihood of higher advertising in 2HCY18 from property launches, we reckon this will only contribute to higher advertising revenue for 4QFY18 only, with the rest manifesting in 1HFY19. As such, our current FY18 estimate for a 12% decline in print revenue might have to be revised downwards by at least 2ppt. 
  • We look to 2QFY18 print revenue falling below the S$100m level as affirmation of this.

US-listed peers’ re-rating on improvement in fundamentals, which remains lacking for SPH. 

  • A re-rating of SPH’s share price like its US-listed peers appears unlikely. The recovery at its peers, such as The New York Times (NYT US), has been driven by a fundamental recovery in both circulation and advertising revenue. 
  • Since 1Q17, NYT has seen an average quarterly growth of 57% in digital subscriptions, which has resulted in overall circulation revenue rising 11-19%. This has arrested the 1-9% decline in advertising revenue, driving overall revenue growth. The same cannot be said for SPH, which continues to see flat circulation revenue in spite of increased digital subscribers amid a backdrop of continued decline in advertising revenue.


EARNINGS REVISION/RISK


Tweak 2018-20 earnings by 1-2%. 

  • We raise our print revenue decline assumption to 14% (previously 12%). At the same time, we tweak our circulation revenue decline assumption from 4% to 3% as our channel check suggests improvement in digital subscriptions. 
  • Our 2018-20 net profit estimates are lowered to S$209m (-2%), S$202m (- 1%) and S$207m (0%) respectively.
  • Our dividend forecasts are unchanged at 13 S cents per year for 2018-20.


VALUATION/RECOMMENDATION


Maintain SELL with a lower target price of S$2.39. 

  • Our revision, which incorporates the revised target price of S$1.84 for M1 among others, sees our SOTP target price declining to S$2.39 (from S$2.42). 
  • Maintain SELL despite only a 7% downside as SPH remains structurally challenged with no floor to be found yet for its media business. 
  • We will review our rating and target price post 2QFY18 results in April.







Foo Zhiwei UOB Kay Hian | http://research.uobkayhian.com/ 2018-03-14
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 2.39 Down 2.420



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