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Author:   |   Latest post: Mon, 9 Dec 2019, 6:43 PM


8 Key Takeaways From SPH FY2019 Results

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SPH announced its' Full Year 2019 earnings this evening after market-hours.

Here are some of the key takeaways from the results:

1.) Print & Media Business Disappoints Again

Revenue for the traditional media business declined by $78.9m from $655.8m in FY2018 to $576.9m in FY2019, which translates into 12% down year on year.

Revenue contribution from print advertisement and circulation are down to $68m this year, which is approximately 12% down year on year.

The only saving grace is the digital advertisement revenue segment which shows growth year on year of $1.5m (6%), though not significant enough.

At $576.9m revenue for the media, it still takes up the bigger chunk of the revenue (59% of overall revenue) so it remains to be seen if we're continue to see a slow structural decline in the print business for the next FY.

2.) Media Segment To Cut 5% Headcount in FY2020 (Restructuring)

The Group has decided to undergo further restructuring to their media business by cutting 5% headcount in FY2020 due to the volume decline and the transformation of digital avenue.

At 5% reduction, the Group can approximately "save" about $17m worth in staff costs, though there will be a one-off retrenchment package costs they have to fork out.

3.) SPH's Property Segment Comes To The Rescue

The flying knight to save SPH result comes from their property segment, which sees a 22.3% growth in revenue from $242.4m in FY2018 to $296.5m in FY2019.

This increase nevertheless is mostly contributed by inorganic growth through the acquisition of UK PBSA, Figtree in Australia and contribution from the Rail Mall.

4.) Woodleigh Residence Unsold Units

Woodleigh residence is an integrated development that SpH has entered into a JV with Kajima Developer and was launched back in 2018.

It has a total number of 667 units and to date it has only sold 147 units, which means the rest of the 520 units are in the excess baggage territory.

While the integrated development is in the strategic place that is right in front of the mrt, it is a suicide to have it priced at above $1800 psf.

That is just obscenely way too expensive in my opinion.

5.) Gearing / Net Debt Has Increased 16% Year on Year

Net Debt (Total Borrowings less Cash Equivalent) have increased from $1.18b in 2017 to $1.25b in 2018 to $1.45b in 2019.

The Group has also issued Perpetual Securities of $150m in 2019, which is classified under equity in their balance sheet.

As the Group is trying to grow via more acquisitions, we will expect gearing to further increase in the years to come. 

6.) Free Cash Flow Once Again Goes Negative For The Second Consecutive Year

If you look into the cashflow statement, you can easily guess what they are doing by now.

Free cash flow has once again gone into negative position this year due to the overseas acquisitions of the UK PBSA portfolio ($603m) and increase stake in Figtree ($192m) earlier this year.

This is despite the divestment of ShareInvestor and Chinatown Point earlier this year.

It will be difficult for Sph to score a positive fcf in the next few years as they continue to try to mitigate the decline in the media business through more acquisitions in property and healthcare. 

7.) FY 2019 Dividends are Cut to 12 Cents

FY 2019 Dividends are down by 8% year on year as the management decides to cut from 13 cents the previous year to 12 cents this year.

12 cents dividends translates into roughly $193m.

Excluding the one-off, this translates to close to 100% payout based on their earnings. 

I think the next few years we'll probably continue to see a cut in dividends especially if the media business continues to decline structurally though it is unlikely that it will be drastic as the Group has a few recurring income in place. 

8.) Increased Strategic Stakes In Other Investments

SPH has made quite a few ventures outside their traditional media business this year, with the notable promising investment made in the UK PBSA accommodation.

They have also taken a 7.38% stake in the units of Prime US Reit launched earlier this year for recurring income and diversification purpose.

Recently, the Group also announced that they will put more investment in a stake in Japan for the nursing care business. 

Whether or not these strategic stakes will eventually play out in a few years time is probably anybody's guess. 

As investors, you just hope the management is a good capital allocator in this case. 

Final Thoughts

Overall, I thought the result was decent enough, given the expectations from everyone that it will be a slaughter. 

I actually think Singtel and Starhub are in a much precarious position than Sph, and I think structurally Sph will be a slower decline than the telco which has to cope with the faster changes and immediate demand in capex. 

At the current price, I think it's probably at a fair price if dividends could sustain at 12 cents while investors could continue to wait for more development next year. 

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