Singapore Press Holdings - CGS-CIMB Research 2018-10-16: Playing Monopoly Deal

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SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings - Playing Monopoly Deal

• SPH’s FY18 bottomline boosted by higher investment income; media EBIT fell 9.7% y-o-y, in tandem with the lower revenue.
• We expect higher property income in FY19F, particularly from its UK PBSA acquisition and upcoming sales launch of the Woodleigh project.
• Downgrade from Add to HOLD as we see limited upside and catalysts, with 5% dividend yield as near-term share price support.

FY18 core net profit boosted by investment income

• SPH’s FY8/18 core net profit of S$268.6m was ahead at 112%/123% of our/consensus expectations, thanks to higher investment income of S$115.2m. This excludes non-operational items from impairment, retrenchment costs and fair value gain on investment property.
• FY18 topline fell 4.4% y-o-y to S$982.6m on weaker media revenue (-9.6% y-o-y), in line with our/consensus full-year forecasts.
• The group declared final DPS of 7 Scts, bringing full-year DPS to 13 Scts, slightly below our estimated 15 Scts.

New digital initiatives take time

• FY18 revenue from display ads and classifieds saw a continued decline of 12-15% y-o-y. Growth in digital revenue was also slow and contributed 15% of total media revenue (3Q18: 14%), while average monthly e-paper readership was slightly higher at 39k (from 3Q18’s 37k).
• The key positive for media was FY18 core EBIT margin of 15.8%, similar to FY17, as a result of staff cost savings, and lower newsprint consumption that offset the hike in average newsprint charge-out price.

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Stronger recurring property contribution in FY19F

• Stripping out the fair value change on investment properties, FY18 property PBT was impacted by financing costs pertaining to Woodleigh development and professional fees, falling S$11.2m.
• Apart from the S$63.2m acquisition of the Rail Mall by SPH REIT (SGX:SK6U) (70%- owned subsidiary) and increased stake in Chinatown Point (30.68%), we expect the recent purchase of purpose-built student accommodation (PBSA) in the UK and upcoming launch of the Woodleigh project to contribute more substantially in FY19F, thereby mitigating weakness in media operations.

Downgrade to HOLD, with 5% yield as near-term support

• We cut our FY19-20F EPS by 6.1-7.9% mainly on lower media revenue, higher staff costs (from digital talent investment) and financing expenses, as well as introduce our FY21F numbers.
• We lower our SOP-based Target Price due to lower valuation for SPH REIT, as well as reduced net cash position. SOP valuation breakdown available in the PDF report attached.
• We also downgrade the stock from Add to HOLD as we see limited near-term catalysts and upside.
• Risks include poor ad revenue and weak overseas execution.

Not all doom and gloom for media

More wins for media and digital to take time

• In FY18, media revenue and profit-before-tax (PBT) fell 9.6% and 14.5% y-o-y respectively, on the back of weaker advertisement (-11.8%) and circulation numbers (-7.3%). On a quarterly basis, the topline declines moderated to high single-digits (Refer to Figure1 in the attached report), while core EBIT margins held steady at 15.8% for FY17-18.
• As the group continues to strike strategic partnerships with key stakeholders and enhance its digital analytics capabilities (Refer to Figure2 in the attached report), we believe its digital revenue contribution could grow gradually (from 15% of total media revenue currently).
• SPH has also, over the years, built a good track record through delivering wins from both its digital portfolio and S$1bn investible fund (previously S$1.1bn), whose divestment gains and net investment income have helped shore up earnings since FY10. The group recorded net investment income of S$54m and S$115m in FY17 and FY18, respectively, on top of a S$150m gain from the sale of 701Search in FY17.
• However, these initiatives will require time and more investments, which could weigh on its dividend-paying capability and underpins our Hold call for the stock.
• We are likely to turn more positive upon greater visibility of a turnaround in the media segment, faster capital recycling through overseas property asset management, and successful collaboration with Keppel Corp (SGX:BN4) on the business transformation of M1 (SGX:B2F).

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-16

SGX Stock Analyst Report HOLD DOWNGRADE ADD 2.74 DOWN 2.880