SPH - DBS Research 2018-07-12: Deferring Bidadari Recognition On ABSD

SPH - DBS Group Research Research 2018-07-12: Deferring Bidadari Recognition On Absd SINGAPORE PRESS HLDGS LTD SGX:T39

SPH - Deferring Bidadari Recognition On Absd

  • Singapore Press Holdings' 3Q18 earnings fell short of expectations on higher operating costs, while adspend continues to fall.
  • New property measures to slow contribution from Bidadari development.
  • Cut FY19-20F earnings by 21-35% on more muted recognition of residential property sales at Bidadari.
  • Maintain HOLD, Target Price S$2.58.

Maintain HOLD with lower Target Price of S$2.58.

  • We continue to have a neutral stance on SPH as recent property cooling measures led us to believe that property sales and recognition at the Bidadari development (The Woodleigh Residences) will be backend loaded towards FY21.
  • 3Q18 earnings also saw higher than expected operating costs on the back of declining ad-spend.
  • We are cautious on SPH’s outlook as our economics desk’s GDP growth forecast is below consensus amid trade tensions between the US and China.
  • We reduced FY19-20F earnings on slower residential property sales from Bidadari after the government’s recent property cooling measures leading to backend loaded residential property sales, and higher costs at the media segment. Accordingly, our Target Price is adjusted to S$2.58. This report is shared at SGinvestors.io.

Where we differ:

  • Our FY20F earnings are below consensus as we have recognised slower than expected residential sales for its Bidadari property project going forward, following the recent adjustment in Additional Buyer’s Stamp Duty (ABSD) and Loan- to-Value limits (LTV).

Potential catalyst: Spin-off of The Seletar Mall.

  • We believe The Seletar Mall will be injected into SPH REIT eventually. If this materialises, it should offer relief and support to SPH’s share price and DPS.

Key Risks to Our View:

  • Adex reversal, disposal of investment stake and expectations of special dividends. A strong economic recovery and pick-up in consumption will lead to adex improvement, which is a key risk to our view.
  • Sale of its investments, such as M1 or spin-off of The Seletar Mall could also lead to higher special DPS expectations. This report is shared at SGinvestors.io.

WHAT’S NEW - 3Q18 Results

Core operating profit below on higher costs:

  • Headline earnings of S$47.4m (+64.3% y-o-y) was below our estimate. While revenue of S$250.1m (-3.8% y-o-y) was in line, operating profit of S$76.4m (-4.6% y-o-y) fell short on higher than expected staff costs and other operating expenses led by higher business promotion costs.
  • The quarter also saw higher net investment income of S$21.9m (+87% y-o-y) from disposal of investments.

Media segment’s adex continued to decline offset by other businesses:

  • Revenue decline was largely led by the Media segment’s (S$168m, -8% y-o-y) decline in adex. Display and Classified ads declined by 10% and 12% y-o-y respectively. These were offset by magazines (+5% y-o-y) and a smaller decline in circulation revenue (-6% y-o-y).
  • Property revenue was relatively stable at S$60m (-2.2% y-o-y), while Other revenue reached S$22m (+45% y-o-y) due to contribution from the aged care and education businesses.

Lower operating margin and profit:

  • Gross profit margin improved (+1.1 ppt to 41.1%) largely due to declines in staff, depreciation and materials & consumables costs. However, operating costs were 10% higher y-o-y at S$26.2m on higher business and promotional costs. Consequently, operating profit and margin were 4.6% and 0.2ppt lower y-o-y at S$76.4m and 30.6%.

Expect muted adspend due to cautious GDP growth outlook:

  • Our economics desk has a below consensus forecast of 3.0% growth for 2018 GDP, down from 3.6% in 2017. 
  • We expect GDP growth to be supported by continued recovery in the services sector and resilient showing in the manufacturing sector despite a more challenging external outlook. However, we are also looking out for trade figures in the coming months due to trade tensions between the US and China, Singapore’s two largest export markets. We hence expect adspend to be muted going forward.

Recent property cooling measures to defer recognition of Bidadari development:

  • The government has reinstated property curbs through raising Additional Buyer’s Stamp Duty (ABSD) rates for Singapore citizens and Singapore permanent residents by 5ppts and tightened Loan-to-Value (LTV) limits by 5ppts for all housing loans granted by financial institutions (not applicable to HDB loans). These measures will raise the cost of ownership and we anticipate demand from potential buyers to cool. 
  • We hence expect recognition of residential property sales of SPH’s Bidadari development (The Woodleigh Residences) to slow going forward. (Key changes to the recent cooling measures

Reducing contribution from property development:

  • Due to the property cooling measures, we have deferred the bulk of residential property sales recognition for Bidadari development (The Woodleigh Residences) towards 2021 as we expect demand to cool. 
  • Aside from deferring demand, we have also lowered our pricing assumption by 5% to reflect the increase in ABSD rates. These have led to lower contribution of JV/associates income in FY19-20F. Our earnings estimates are therefore reduced by 21-35%. This report is shared at SGinvestors.io.

Maintain HOLD, Target Price lowered to S$2.58:

  • Our overall Target Price based on SOTP is reduced to S$2.58. This is after adjusting for a negative impact from a lower value of the Media business due to higher than expected costs and a backend loaded residential property sales outlook at The Woodleigh Residences.
  • Our Target Price of S$2.58 now comprises Media business at S$0.58, existing property business at S$1.47, new Bidadari property development at S$0.16, net cash and investments at S$0.37.
  • Maintain HOLD.

Alfie YEO DBS Group Research Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2018-07-12
SGX Stock Analyst Report HOLD Maintain HOLD 2.58 Down 2.600