Singapore Press Holdings (SPH) - UOB Kay Hian 2019-04-10: 2QFY19 In Line, Defensive Assets Gaining Momentum

SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings (SPH) - 2QFY19: In Line, Defensive Assets Gaining Momentum

Singapore Press Holdings (SPH) reported an in-line 1HFY19 core net profit of S$89m, forming 43%/41% of UOBKH/consensus estimates, in a seasonally weaker second quarter.
Display ad revenue decline was slightly larger than anticipated on a shift in advertising spending. However, its UK PBSA acquisitions are on track, with the purchase of two new assets in Feb and Mar 19.
Maintain BUY with an unchanged SOTP-based target price of $2.82.

SINGAPORE PRESS HOLDINGS (SGX:T39) reported 2QFY19 headline net profit of S$29.7m (-25.7% y-o-y) largely due to continued weakness in the media business. This was offset slightly by lower operating costs (-7.0% y-o-y). Comparatively, there was also a lack of divestment gains from its treasury and investment portfolio.
Excluding one-off fair value gains, core net profit was at S$32m (-1.5% y-o-y). 1HFY19 core net profit came in at S$89m, forming 43% and 41% of our and consensus estimates respectively, in line with expectations.

Revenue from the media business fell to S$134.1m (-13.8% y-o-y), a larger decline compared to the 6.8% y-o-y decline seen in 1QFY19. This was attributed to a shift in advertiser spending pattern with stronger spending seen during Black Friday and the pre-Christmas periods in 1QFY19. 2QFY19 was also weak due to an earlier Chinese New Year.
The group is continuing its efforts in supplementing ad revenue from digital ads. Overall in 1HFY19, digital ad revenue grew steadily to S$29m (+6.7% y-o-y), supported by online classified platforms such as FastJobs which saw an improvement of 13% y-o-y.

Circulation revenue for 2QFY19 fell by 8.8% y-o-y, compared to the 10.8% decline in 1QFY19. Daily average newspaper circulation was lower in 1HFY19, totalling approximately 720,000 and representing a 6.2% y-o-y decline while digital newspaper circulation improved by 23,000, up 12% y-o-y.

With the addition of the Mayflower purpose-built student accommodation (PBSA) portfolio ($12.5m) as well as the acquisition of Figtree Grove Shopping Centre in Australia ($3.2m), the segment was given a boost.
However, due to fair value changes on investment properties of S$12.9m, mainly relating to the stamp duty expense for Figtree as well as financing and marketing costs for Woodleigh residences, operating profit experienced a dip.

While there was a cut to dividend (1HFY18: 6 S cents), payout ratio has only dipped slightly, representing a 104% payout ratio of core earnings (1HFY18: 107%).
SPH is in continuous efforts to balance dividend payouts against its declining earnings, but this could stabilise going forward as the property segment forms a larger part of its earnings.

SPH’s PBSA assets continue to gain momentum with the addition of two new assets with 100% occupancy: St Marks (City of Lincoln) with 116 beds, and Clifton & Stewart House (Glasgow) with 264 beds.
On the property front, contributions from Figtree Grove which was acquired in Dec 18 have kicked in; SPH REIT (SGX:SK6U)’s properties across three of its malls also reported positive rental reversions in the quarter, led by Paragon’s increase of 8.6%.

SPH’s defensive strategy remains intact with the addition of new student accommodation assets. While its media segment may appear weak, seasonality could distort its operational development.
SPH’s digitisation efforts and lower operating costs are factors which remain encouraging.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-04-10

SGX Stock Analyst Report BUY MAINTAIN BUY 2.820 SAME 2.820