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

SINGAPORE PRESS HLDGS LTD (SGX:T39)

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 (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.

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.

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.

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.

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).

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.

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