Singapore Press Holdings - OCBC Investment 2018-10-16: Cut In Income Is The Outcome


Singapore Press Holdings - Cut In Income Is The Outcome

  • 13.3% drop in DPS.
  • Headwinds still lurking.
  • Fair Value increased to S$2.55.

6th consecutive year of cut in dividends

  • SPH’s FY18 operating revenue dipped 4.8% y-o-y to S$982.6m, with the group’s media segment being (unsurprisingly) the main drag, as the latter fell 9.6% y-o-y. The group’s revenue from its property segment was 0.7% lower at S$242.4m, while revenue from the group’s other businesses grew 34.0% to S$84.4, due mainly to the first full year contribution from the aged care business.
  • Full-year PATMI fell 19.7% y-o-y to S$281.1m, due largely to the absence of a divestment gain of a JV in FY17. However, FY18 saw the group recognize a substantially higher net profit on disposal of investments, especially in 4Q18, with the proceeds likely redeployed into the property asset management sector.
  • Notably, DPS was cut from 15 S-cents in FY17 to 13 S-cents in FY18; this represents the sixth consecutive year of cuts (excluding the special dividend in FY13 pursuant to the establishment of SPH REIT (SGX:SK6U)), and came in below ours and the median consensus expectation of 15 S-cents.
  • All considered, we deem this set of results to be broadly below expectations.

~ SGinvestors.io ~ Where SG investors share

Reasons to be cautious still

  • While the y-o-y % decline in media operating revenue dropped substantially from 13.9% in 1QFY18 to 7.4% in 2QFY18, this has now creeped up to 8.5% in 4QFY18. Average newsprint charge-out price has increased from US$490 1QFY18 to US$559 in 4QFY18, and the group expects newsprint prices to strengthen further. A combination of these could weigh on margins, though we have yet to factor this in.
  • Post-FY18, SPH purchased 14 purpose-built student accommodation assets in the UK for a cash consideration of ~GBP180.5m, subject to adjustments. Based on our calculations, 3 assets in Plymouth (or ~17.3% of total beds in the portfolio) have an occupancy rate (as at 27 Sep 2018) of between 37.5% - 63.4%, due to factors such as the late entry of these assets in the market in the hope of nominations.
  • Still, we note that a combination of a rent guarantee and a price adjustment mechanism could result in a final cap rate of 6.3% or better.
  • As highlighted in our previous report: Singapore Press Holdings - Off To Schools, we believe that Plymouth continues to see elevated supply, and Brexit could throw a spanner in the works.
  • We fine-tune our assumptions and roll-forward our valuations, thus increasing our fair value marginally from S$2.52 to S$2.55.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2018-10-16
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.55 UP 2.520