Singapore Press Holdings (SPH) - UOB Kay Hian 2020-01-14: 1QFY20 Earnings In Line But Not Finding A Bottom Yet

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

Singapore Press Holdings (SPH) - 1QFY20 Earnings In Line But Not Finding A Bottom Yet

  • SPH’s 1QFY20 core net profit of S$46.8m is in line with our expectations. Media ad revenue continued its decline, down 17% y-o-y, and does not appear to be abating. While PBSA acquisitions have grown SPH’s asset base to a sizeable extent, we remain wary of the decline in group core operating profit (-21% y-o-y).
  • Maintain HOLD with a lower SOTP-based target price. See SPH Target Price.
  • Entry price: S$2.00.



RESULTS


Core net profit of S$46.8m, down 18% y-o-y.

  • Excluding new student accommodation assets acquired in Dec 19, SINGAPORE PRESS HOLDINGS (SPH, SGX:T39)’s 1QFY20 core earnings came in at 32% of our full-year estimate, in line with expectations.
  • 1QFY is seasonally stronger and typically makes up 30-33% of full-year profit. Revenue was down 4.1% y-o-y while core operating profit of S$67m dropped 20.7% y-o-y.
  • See SPH Announcements; SPH Latest News.

Advertising: Decline in media business not abating yet.

  • The core media division saw lower revenue (-17% y-o-y) as the decline is showing no sign of slowing down. Both segments (display and classified) saw turnover drop 22% and 15% y-o-y (4QFY19: -18% and -20% y-o-y) respectively. Digital ad revenue registered a small increment of S$1.6m y-o-y in 1QFY20.

Circulation: Some signs of relief from digital initiative.

  • Circulation volume grew 8.1% y-o-y, the first increase after four quarters. The group’s digital strategy continues to see improvement in its tablet viewership as well as school promotions. Its Straits Times News Tablet was the latest to be launched in Dec 19 with 5,200 units sold as at 7 Jan 20, which continues the healthy trend of the news tablet take-ups from Berita Harian and Zaobao. However, revenue still fell marginally in 1QFY20, down 4.1% y-o-y, and we think this is due to the lower pricing of digital products.

Property growing in significance.

  • Property revenue increased to S$80.8m in 1QFY20, up 18.9% y-o-y, as its purpose-built student accommodation (PBSA) portfolio from Sheffield, Southampton and Leeds contributed in the quarter. As for SPH REIT assets, Paragon, The Clementi Mall and The Rail Mall recorded positive rental reversions, with NPI registering a S$5.1m increase y-o-y.
  • We expect the Student Castle portfolio of PBSA (acquired in Dec 19) and newly acquired REIT property Westfield Maron (Australian mall acquired in Dec 19) to continue to grow the property segment in the near term.


STOCK IMPACT


Media decline looks set to stay.

  • Weakness in the advertising industry coupled with the slower economic growth outlook makes for a tough media environment and we noted the decline across all sectors. On average, we note that the media business has declined at an average rate of S$20m-25m in revenue per quarter for the past four quarters.

Still on the lookout for opportunities.

  • While PBSA acquisitions have grown SPH’s asset base sizeably, the group is still on the look-out for prospects. Its Aged Care business is focusing on improving operational efficiency and seeking opportunities overseas.


EARNINGS REVISION/RISK

  • None.


VALUATION/RECOMMENDATION

  • Maintain HOLD with a lower SOTP-based target price. See SPH Target Price. We ascribe a higher discount rate and lower valuation for the group’s newspaper business due to its higher risk profile and continual decline in earnings.
  • SPH is currently trading at a yield of 5.1%, close to its 10-year long-term mean of 5.0%.
  • Entry price is S$2.00.
  • See SPH Share Price; SPH Target Price; SPH Dividend History.


SHARE PRICE CATALYST

  • Acquisition of defensive assets.
  • Slower-than-expected decline in the media business.
  • See SPH Analyst Reports.





Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-01-14
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.22 DOWN 2.300



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