Singapore Press Holdings (SPH) - UOB Kay Hian 2020-10-15: FY20 Hard-Pressed For Better Days

SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings (SPH) - FY20 Hard-Pressed For Better Days

SPH announced headline net loss of S$84m, dragged by revaluation losses and impairments. While core earnings were in line with expectations, the final dividend of S$0.01 came in below expectations.
Negatives have been largely priced in, with SPH's share price trading at an undemanding 0.5x FY20 book value.

A re-rating for SPH remains elusive as further risk of lockdown measures remain on the back of surging COVID-19 cases in the UK. Maintain HOLD.

SPH (SGX:T39) reported FY20 (Sep 2019 to Aug 2020) headline loss of S$84m, core net profit of S$120m. Final dividend cut to S$0.01. See SPH Announcements.
Excluding one-off items including revaluation losses and impairments, SPH's 2HFY20 core earnings came in at S$43m, down 30% y-o-y.
While full-year core earnings of S$120m was in line with expectations, dividends came in below expectations. Final dividend came in at S$0.01 (2HFY19: S$0.055) as SPH’s cash conservation priority remains in place.
Full year dividend of S$0.025 was down 79% y-o-y. See SPH Dividend History.

SPH's media segment print ad revenue dropped 32.9% y-o-y in its worst annual decline as advertisers scaled down on marketing budgets due to the disruption of the pandemic. The hit to advertising spending is broad-based, including digital ads, which declined 6.2% on a y-o-y basis.
We note a slight reduction in the decline for 4QFY20 as compared to the previous quarter, though the drop remains significant in nature.
Management noted a lagged effect in advertising revenue recovery, as the general economy had recovered during previous business cycles, given the discretionary nature of advertising spending. However, the structural challenges faced by print media could impede such an occurrence this time around.

Digital readership has been on the rise with SPH’s news tablet e-paper reading platform, while also being boosted by the news of COVID-19 and the General Election 2020. Digital circulation grew 53% y-o-y in FY20 and has outpaced the decline in print circulation, with total circulation for FY20 rising 9% y-o-y.
SPH is continuing its digital transformation efforts including data analytics and personalised content recommendations for subscribers.

While SPH’s property revenue grew to S$327m (+10% y-o-y) from the addition of SPH REIT (SGX:SK6U)’s acquisition as well as the group’s purpose built student accommodation (PBSA) acquisition, uncertainties remain as to the potential for further measures to combat the pandemic.
In the case of the UK PBSA, recent measures include a tiered lockdown system, which would likely affect the return of international students. However, management noted that local students’ demand for accommodation remained strong, with students opting to forgo their gap year given the downbeat economy. Overall, bookings are healthy and the group achieved 88% of target revenue for the academic year (AY 20/21) as of 9 Oct 20. Bookings will continue into early-21 to cater to the delayed return of international students.
On the SPH REIT front, tenant sales for Paragon have fallen approximately 28% y-o-y in FY20.

Given SPH’s prudent and cash conservation approach, we believe that dividends are likely to come from core earnings net of one-off items. We note that FY20 core earnings, net of S$68.5m of grant support, would suggest a payout ratio of approximately 80%, only slightly lower than the historical range of 90-120%.
Our core earnings estimate, net of grant support for FY21, suggests that a payout ratio of 80-100% would yield between S$0.035- S$0.045 of full-year dividends. However, we have not factored in any further lockdown measures which could significantly impact SPH’s property segment and recurring income levels.

See SPH Share Price; SPH Target Price; SPH Analyst Reports; SPH Dividend History; SPH Announcements; SPH Latest News.
We take into account the sustained impact in media advertising revenue as well as gradual recovery for SPH REIT’s retail malls. Maintain HOLD on SPH with lower SOTP-based target price of S$1.12.
We input a higher conglomerate discount of 30% (previously 25%), given the severe adverse impact of the pandemic for the group.
Downside to SPH's share price appears limited, given current undemanding valuation at 0.5x book value; however we do not see any near term catalyst for the counter.
Recommended entry price for SPH: $1.00.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-10-15

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.12 DOWN 1.220