Singapore Press Holdings (SPH) - UOB Kay Hian 2019-07-15: 3QFY19 Huge Disappointment As Media Revenue Decline Accelerates Again; Downgrade To HOLD

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

Singapore Press Holdings (SPH) - 3QFY19: Huge Disappointment As Media Revenue Decline Accelerates Again; Downgrade To HOLD

  • SPH’s 3QFY19 core net profit fell 34% y-o-y to S$47.6m and missed our expectations by 30%.
  • Although the property segment recorded steady progress, the decline in the media business shows no signs of abating, with revenue down 14.5% y-o-y, which came as a surprise, while a weaker economy outlook does not appear to do any favour to ad spending.
  • Downgrade to HOLD. We cut our SOTP-based target price by 19% to $2.33, EPS forecasts by 16-19% and DPS forecasts by 10-13%.
  • Entry price: S$2.10



3QFY19 RESULTS


3QFY19 core net profit at S$47.6m, declining stronger than expected at 34% yoy.

  • Singapore Press Holdings (SPH, SGX:T39) reported headline net profit of S$26.2m, with adjusted 9MFY19 net profit of S$136.7m representing 65% of our full-year forecast, below expectations. Revenue was largely flat (-1.6% y-o-y) while operating profit dropped 36.6% y-o-y.
  • The group also recorded an impairment of S$21.5m on goodwill and intangibles relating to the aged care business.

Advertising revenue: Higher-than-expected decline came as a disappointment.

  • SPH's media revenue fell to S$143.6m (-14.5% y-o-y) and the pace of decline does not seem to be slowing down (2QFY19: -13.8% y-o-y). The decline in display ads also accelerated in the quarter, falling 15.2% y-o-y while Classifieds revenue fell 17.7% y-o-y.
  • The group is continuing in its efforts to supplement ad revenue with digital ads although the increase has been limited, with 9MFY19 digital ad revenue easing 4.9% y-o-y.

Circulation revenue: Better contribution from digital.

  • SPH's Circulation revenue for 3QFY19 fell 6.7% y-o-y (2QFY19: -8.9% y-o-y). There was a faster rate of conversion to digital newspaper circulation with 9MFY19 digital daily copies increasing 22% y-o-y (1HFY19: +12% y-o-y). However, taking into account the decline in print circulation, the average daily circulation was still down y-o-y.

Property: Grew on acquisitions.

  • The property has pre-tax profit for 9MFY19. SPH REIT (SGX:SK6U) assets also saw solid performances with Paragon’s rental increasing 2.6% y-o-y in 3QFY19.
  • For Woodleigh Residences, the group sold end-Jun 19.
  • SPH looks to be adding more assets to its portfolio, including the proposed subscription to Prime US REIT (SGX:OXMU), a portfolio of US office assets. The initial investment is US$55m and provides an additional source of recurring income.


STOCK IMPACT


Pace of print decline accelerated again, while outlook weakens.

  • Ad spending further and this challenges the GDP growth has a decade in 2Q19 and ad spend may be lower correspondingly. Operating costs also increased for the first time in five quarters, up 3.5% y-o-y, hence there could be further downside to profits.


EARNINGS REVISION/RISK


Slash our FY19-21 earnings by 16-19%.

  • We revise our issuance of perpetual securities.
  • Our revised FY19-21F net profits are S$177m (- 16%), S$165m (-19%) and S$168m (-19%) respectively. Correspondingly, our DPS estimates are also cut by 10-13% to 9.5-10 S cents.


VALUATION/RECOMMENDATION


Downgrade to HOLD with a revised SOTP-based target price of S$2.33.

  • Our SOTP-based target price is S$2.33 as we incorporate:
    1. higher SPH REIT prices,
    2. lower valuation to the core newspaper business, and
    3. a smaller valuation multiple for its aged care business.
  • Entry price is S$2.10.
  • The stock has done well with its recent price recovery and we reckon that the acquisition of defensive assets is still a sound long-term strategy. However, the large decline from print ads came as a surprise and is a drag that shows no signs of abating yet.


SHARE PRICE CATALYST

  • Acquisition of defensive assets.





Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-07-15
SGX Stock Analyst Report HOLD DOWNGRADE BUY 2.33 DOWN 2.860



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