Singapore Press Holdings (SPH) - UOB Kay Hian 2020-04-09: 1HFY20 In Line, But Headwinds Ahead


Singapore Press Holdings (SPH) - 1HFY20 In Line, But Headwinds Ahead

  • SPH (SGX:T39) reported 2QFY20 core net profit of S$27.4m, in line with our expectations. Interim dividend is cut to 1.5 S cents, a drop of 73% y-o-y as the group looks towards cash conservation in light of the impact from COVID-19.
  • Its retail malls will be under pressure if the stay-home notice is prolonged while the new academic year for student accommodation is still uncertain.

SPH's 2QFY20 core net profit of S$27.4m, down 14.8% y-o-y; interim dividend cut.

  • SPH (SGX:T39)'s 2QFY20 core earnings came in at 58%/49% of our and consensus’ full-year estimate. See SPH Announcements.
  • We are expecting a weaker 2HFY20, impacted by the COVID-19 pandemic; hence we deem the results to be in line with expectations.
  • Interim dividend, however came in at only 1.5 S cents (1HFY19: 5.5 S cents), a huge cut in view of the uncertainty from the COVID-19 outbreak. See SPH Dividend History.
  • Revenue was up 1.8% y-o-y while core operating profit of S$61.9m was up marginally by 1.1% y-o-y.

Advertising: Feeling the initial impact from COVID-19.

  • While government advertising was up, other sectors saw declines. Display ads fell 25% y-o-y in the quarter, while Classifieds revenue fell 11% y-o-y. The group noted that the impact will likely worsen with recession fears.

Circulation: Stronger digital readership.

  • Digital readership has been on the rise with the group’s news tablet promotion as well as general readership from the COVID-19 outbreak. Daily average page views increased 4 times from 1.4m in Jan 20 to 5.6m in Feb 20.
  • For 1HFY20, the daily average newspaper digital sales increased by 110,355 copies (+50.2% y-o-y). However, this was still unable to offset the decline in print sales and overall, circulation revenue fell 5.4% y-o-y in 1HFY20.
  • While circulation does appear promising, its relative size (approximately 30% media revenue) is still smaller compared to the advertising portion and is unlikely to offset the advertising decline, in our view.

Property: Starting to feel the brunt of COVID-19.

  • SPH REIT (SGX:SK6U)’s retail malls and student accommodation will likely be hard hit from a prolonged stay-home notice from COVID-19. Footfall is down for the malls with Paragon especially affected from lower tourist arrivals, and we estimate that Paragon contributes approximately 40-50% of the group’s property income.

Media set for a tough road ahead.

  • The media business recorded one of the weakest quarters, with minimal profitability. With a pause in retail and property launches delayed, there will likely be a tough few quarters ahead. The group will benefit from wage support in the recent Budget by approximately S$30m but this is unlikely to offset an accelerated decline in the media segment.
  • Our assumption for advertising revenue decline now stands at a drop of 20% y-o-y for FY20. Correspondingly, we have assigned a zero valuation for the media business on a conservative basis (previously S$0.09/share).

M&As on hold for now.

  • Given the uncertainty over the COVID-19 outbreak, the group’s priority is now is to conserve cash. M&As to boost its recurring income will take a backseat for now. The group has planned for 18 months’ impact from the pandemic and is equipped with about S$500m in cash, with 19% of debt repayable in a year.

Trim FY20-22F earnings by 2.2-6.6%.

  • We assumed a higher decline in media ad revenue offset by cost savings in government wage support.
  • Maintain HOLD with SOTP-based target price of S$1.39. 
  • See attached PDF report for SOTP details.
  • Entry price is S$1.20.
  • See SPH Share Price; SPH Target Price; SPH Analyst Reports; SPH Dividend History; SPH Announcements; SPH Latest News.
  • With cash conversation as priority, our dividend assumption drops to 4 S cents for FY20 (50% payout ratio).
  • Catalyst:
    • Pick-up in retail malls and international students for purpose built student accommodation.
    • Slower-than-expected decline in the media business.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.39 DOWN 1.610