Singapore Press Holdings (SPH) - UOB Kay Hian 2019-10-21: 4QFY19 Misses Expectations; Still Seeing Weak Advertising

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

Singapore Press Holdings (SPH) - 4QFY19 Misses Expectations; Still Seeing Weak Advertising

  • SINGAPORE PRESS HOLDINGS (SPH, SGX:T39)’s FY19 core net profit of S$150m missed our expectations. Media ad revenue took another hit from a weaker quarter. While restructuring efforts would help, ad revenue needs to see a much slower decline for a better outlook.
  • Full-year dividend of 12 S cents came as a slight positive surprise and further acquisitions may help recurring income levels for dividend payout. See SPH's dividend history.
  • Maintain HOLD with a lower SOTP-based target price of $2.25.
  • Entry price: S$2.00.



RESULTS


SPH's FY19 core net profit was S$150.2m, down 25% y-o-y, and represents 85% of our forecast.

  • Including fair value change on investment properties (S$82.4m) and other one-off items, SPH's FY19 headline profit came in at S$213.2m, down 23.4% y-o-y and below expectations. 4QFY19 core net profit was S$13.5m, down 45% y-o-y.
  • A final dividend of 5.5 S cents and a special dividend of 1 S cent were declared (FY18: Final and special dividend of 7 S cents). The smaller drop in dividend came in as a slight positive surprise. See SPH's dividend history.

Advertising revenue: Still a higher q-o-q decline.

  • Media ad revenue fell to S$88.8m (-16% y-o-y) in 4QFY19 and declined 12% y-o-y for FY19. Management commented that this rate of decline mirrors the industry’s rate of decline in the advertising space.
  • The decline from display ads increased in the quarter, falling 19% y-o-y, while Classifieds revenue fell 20% y-o-y. Digital ad revenue grew steadily at 4% y-o-y but we estimate it still represents a small base at about 15% of ad revenue.

Circulation revenue: Better contribution from digital.

  • Circulation revenue for 4QFY19 fell 3.2% y-o-y (3QFY19: -6.7% y-o-y). There was better performance from this segment, seeing some positive effects from tablet viewership.
  • According to SPH, its Zaobao news tablet garnered 10,000 subscriptions in six months, of which 75% were new subscribers.

Property to the rescue again.

  • The property segment continued to make progress with new acquisitions contributing to its growth. Its purpose-built student accommodation (PBSA) portfolio contributed S$15m in recurring income for FY19.
  • As for SPH REIT (SGX:SK6U), Paragon’s positive rental reversion in FY19 was 9.7% for new and renewed leases while Clementi Mall was up 5%. However, Woodleigh Residences seem to have had slower sales of units, as of Sep 19: 22% sold (Jun 19: 17%).

Announcement of restructuring exercise.

  • SPH announced a restructuring exercise that will result in a 5% reduction in staff numbers in the media group with the expected retrenchment costs at S$8m. The exercise is expected to be completed in 1QFY20. We estimate this will lower staff costs by 3-5% in FY20.


STOCK IMPACT


Structural decline still extending its run.

  • Weakness in the advertising industry is not helped by the slower economic growth. In addition, ad spending for print media continues to be impacted by the convergence towards digital ad spending, attaining a larger slice of the pie. According to PWC’s Entertainment & Media Outlook report, digital consumer and advertising revenue in Singapore is expected to double and grow by 11.7% in 2019-23.
  • So far, SPH’s digital ad growth is still progressing slowly with a small base and the print ad decline surpasses it. Coupled with the weakness in the classified ads segment, SPH’s media revenue will at best narrow to a mid-to high-single-digit decline in FY20.


EARNINGS REVISION/RISK

  • Cut FY20-21 net profit forecasts by up to 11%. We adjust our earnings forecasts to reflect cost savings from the reduction in headcounts. Offsetting this would be the lower print revenue forecasts.
  • We forecast FY20 dividend at 11 S cents. We factor in a slight decline from FY19 levels, given the risk in the media business. Further acquisitions could mitigate this and help maintain dividend payout.


VALUATION/RECOMMENDATION

  • Maintain HOLD with a revised SOTP-based target price of S$2.25 (from S$2.33) as we incorporate:
    • lower valuation for the newspaper business;
    • higher valuation for investment properties;
    • Prime US REIT (SGX:OXMU)’s market valuation.
  • While restructuring efforts will help bottom line, ad revenue needs to see a much slower decline for a better outlook.
  • Entry price is S$2.00. See SPH's share price.


SHARE PRICE CATALYST

  • Acquisition of defensive assets.





Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-10-21
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.25 DOWN 2.330



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