SPH Singapore Press Holdings - UOB Kay Hian 2018-07-12: 3QFY18 Waiting Expectantly For A Real Catalyst

SPH Singapore Press Holdings - UOB Kay Hian Research 2018-07-12: 3QFY18 Waiting Expectantly For A Real Catalyst SINGAPORE PRESS HLDGS LTD SGX:T39

SPH Singapore Press Holdings - 3QFY18 Waiting Expectantly For A Real Catalyst

  • SPH's 3QFY18 core net profit of S$58m was within expectations. Headline earnings were higher y-o-y due to lower impairments and divestments gains.
  • SPH’s Media business continued to see advertising and circulation revenue falling, albeit at a slower rate. Property earnings were largely stable, dragged by lower rental reversion at Paragon.
  • Our net profit forecast remains unchanged for FY18; FY19-20 estimates were raised by 2%.
  • Maintain HOLD with a higher target price of S$2.58. Entry price: S$2.40.



RESULTS

  • Singapore Press Holdings (SPH) reported 3QFY18 core earnings of S$58m, representing 28%/27% of UOBKH/consensus full-year earnings, in line with expectations.
  • For 3QFY18, headline net profit was S$47.4m (+64% y-o-y), higher y-o-y on lower impairments. Divestment gains of S$15m also contributed to the better performance. Excluding divestment gains, impairment loss of S$24.4m (3QFY17: S$39.5m) and other one-off items, core net profit was S$57.5m, down 16% y-o-y. This report is shared at SGinvestors.io.


Pending an analyst briefing today (12 July), our first cut of the results:


Media business remained soft.

  • Revenue for the Media business continued to decline, falling 8% y-o-y to S$168m. The weakness was again led by softness in the Display and Classified businesses. 
  • The pace of decline appears to be slowing, as both periods had reported a similar page count decline (12-13%) but showed a sharply lower revenue decline for the Print revenue segment (3QFY18: -10% y-o-y, 3QFY17: -19% y-o-y). We had earlier noted the relationship weakening, and suspect it to be due to increased Property advertising supporting revenue.

Impairment for Online Classified business strikes us as odd.

  • An impairment of S$22.3m was reported for the quarter, and largely attributed to the Online Classified business. The impairment comes as a slight disconnect, considering that SPH had in its slides remarked the Digital Advertising business as “good growth with momentum ahead.”

Circulation revenue declined further by 5% yoy.

  • Revenue was lower at ~S$39m (-5% y-o-y) as Print circulation continued to decline. While conversion to Digital circulations has increased, it appears to be unable to offset the overall decline in Circulation revenue.

Property mostly stable; slight weakness from Paragon.

  • Revenue for the Property segment was largely stable at S$60.1m (-2.4% y-o-y), mildly impacted by lower rental reversion at Paragon.
  • Operating margin fell 1ppt q-o-q to 79.2% as a result. Operating income at Clementi Mall was stable. Implied operating margins from Seletar Mall appear to be unstable, making it unlikely to be spun off in the next 12 months. This report is shared at SGinvestors.io.


STOCK IMPACT


Higher property advertising in 2H18 to support Media earnings.

  • The pace of decline for the Media business appears to be slowing. We expect any further earnings softness to be offset by higher advertising from the property sector as a slew of launches are prepared in 2H18. This will likely support earnings for the next 2-3 consecutive quarters.
  • A turnaround driven by digital advertising does not seem to be the case for now, as 9MFY18 revenue contribution of S$41.8m makes up < 10% of Media revenue.

Slower decline might be temporary.

  • Post the property cooling measures, advertising from the property segment is expected to wane after 2018. Unless other segments step up advertising to offset the likely decline, Media earnings are at risk of sliding again. The current relief in earnings decline may prove to be a false dawn and we look towards management’s guidance on their strategy going into FY19.

Acquisitions of new property assets to potentially offset any further decline.

  • Should there be no clear strategy to stem the decline in the Media business beyond FY19, SPH could step up its property acquisition strategy to offset it. However, we caution that there are limits to how much this strategy will work. 
  • Again, we look towards management shedding more light on their target country and asset class to achieve this.


EARNINGS REVISION/RISK


Adjust earnings for FY19-20 by 2%, FY18 forecast unchanged.

  • We have left our net profit estimate for FY18 unchanged at S$209m. Earnings for FY19-20 have been adjusted upwards by 2% to S$207m (+2%) and S$212m (+2%) respectively as we build in contributions from The Rail Mall.


VALUATION/RECOMMENDATION


Maintain HOLD and raise target price to S$2.58.

  • Our SOTP-based target price rises from S$2.46 to S$2.58 as we incorporate the impact of:
    1. higher RNAV discount of 25% for the Bidadari Site, and
    2. adjustments for the faster-than-expected headcount decline of its core Media business.
  • As it stands, we view the current strategy for SPH to be an attempt to stem the business decline, and expect the short-term result to be one that provides stability or a small boost to earnings at best.
  • Until a longer-term strategy that puts SPH on a solid path to recovery, we keep our HOLD call for now. Current valuations imply a 2018F dividend yield of 4.4%.





Foo Zhiwei UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-07-12
SGX Stock Analyst Report HOLD Maintain HOLD 2.58 Up 2.460



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