SGX Stocks and Warrants

Author: kimeng   |   Latest post: Fri, 16 Nov 2018, 11:43 AM


Singapore Press Holdings: Cut in Income Is the Outcome

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  • 13.3% drop in DPS
  • Headwinds still lurking
  • FV increased to S$2.55

6th Consecutive Year of Cut in Dividends

SPH’s FY18 operating revenue dipped 4.8% YoY to S$982.6m, with the group’s media segment being (unsurprisingly) the main drag, as the latter fell 9.6% YoY. The group’s revenue from its property segment was 0.7% lower at S$242.4m, while revenue from the group’s other businesses grew 34.0% to S$84.4, due mainly to the first full year contribution from the aged care business.

Full-year PATMI fell 19.7% YoY to S$281.1m, due largely to the absence of a divestment gain of a JV in FY17. However, FY18 saw the group recognize a substantially higher net profit on disposal of investments, especially in 4Q18, with the proceeds likely redeployed into the property asset management sector.

Notably, DPS was cut from 15 S-cents in FY17 to 13 Scents in FY18; this represents the sixth consecutive year of cuts (excluding the special dividend in FY13 pursuant to the establishment of SPH REIT), and came in below ours and the median consensus expectation of 15 S-cents. All considered, we deem this set of results to be broadly below expectations.

Reasons to be Cautious Still

While the YoY % decline in media operating revenue dropped substantially from 13.9% in 1QFY18 to 7.4% in 2QFY18, this has now creeped up to 8.5% in 4QFY18. Average newsprint charge-out price has increased from US$490 1QFY18 to US$559 in 4QFY18, and the group expects newsprint prices to strengthen further.

A combination of these could weigh on margins, though we have yet to factor this in. Post-FY18, SPH purchased 14 purpose-built student accommodation assets in the UK for a cash consideration of ~GBP180.5m, subject to adjustments. Based on our calculations, 3 assets in Plymouth (or ~17.3% of total beds in the portfolio) have an occupancy rate (as at 27 Sep 2018) of between 37.5% - 63.4%, due to factors such as the late entry of these assets in the market in the hope of nominations.

Still, we note that a combination of a rent guarantee and a price adjustment mechanism could result in a final cap rate of 6.3% or better. As highlighted in our previous report, we believe that Plymouth continues to see elevated supply, and Brexit could throw a spanner in the works. We fine-tune our assumptions and roll-forward our valuations, thus increasing our fair value marginally from S$2.52 to S$2.55.

Source: OCBC Research - 16 Oct 2018

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Labels: SPH

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