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

SINGAPORE PRESS HLDGS LTD (SGX:T39) | SGinvestors.io 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.



2QFY19 RESULTS


2QFY19 net profit at S$29.7m; results broadly in line with a seasonally weaker quarter.

  • 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.

Slightly higher-than-expected decline in advertising revenue.

  • 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 declined, but at a slower pace.

  • 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.

Property segment top-line grew 20% 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.

Interim dividend declared at 5.5 S cents.

  • 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.


STOCK IMPACT


PBSA segment gains momentum; property segment leading the way.

  • 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%.


EARNINGS REVISION/RISK

  • No changes to earnings forecasts.


VALUATION/RECOMMENDATION


Maintain BUY with an unchanged SOTP-based target price of S$2.82.

  • 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.


SHARE PRICE CATALYST

  • Acquisition of student accommodation assets.





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



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