• 3QFY16 results missed expectations
• S$28.4m impairment on mag biz
• FY16/17 div forecasts lowered

3QFY16 numbers a miss

Singapore Press Holdings (SPH) reported that its 3QFY16 PATMI dipped 46.4% YoY to S$52.7m, mainly due to continued underperformance at its media segment and a large S$28.4m impairment charge related to the magazine business. In terms of the topline, SPH’s operating revenue similarly dipped 5.0% YoY to S$291.6m as management cited a sluggish economic environment.

Overall, we deem the quarter’s result to be a miss versus consensus and our expectations, and we lower our FY16F and FY17F PATMI forecasts by 16.6% and 13.1% to S$228.3m and S$235.7m, respectively. Our FY16F and FY17F dividend forecasts also decline to 18.0 S-cents to 16.0 S-cents, respectively (versus the 20.0 S-cents dividend in FY15).

Fighting core business decline an uphill task

Against the backdrop of a lackluster economy and challenges in the traditional media space, the group’s ad numbers continue to come under pressure. Total newspaper ad revenues declined 8.6% YoY over the quarter (display down 11.9% and classified down 1.7%), while circulation revenues were mostly stable due to the positive impact of newspaper cover price increased implemented in Mar 16.

We understand that the group has been actively managing its cost base against persistent inflationary pressure; materials, production and distribution costs fell 8.0% YoY to S$42.7m over the quarter, while the increase in staff costs was capped to 2.6% YoY. The group’s property segment pulled in a steady set of results over the quarter, as 3QFY16 revenues increased 1.6% YoY to S$60.3m on the back of higher rental and services income.

Dividend uncertainties likely to foment headwinds for shares

We update our valuation model for lower profit expectations and our fair value estimate dips 9.8% to S$3.41, from S$3.78 previously. In addition, given that the stock is prized by investors primarily for its rich dividend payouts, we see uncertainties over the stock’s level of dividends ahead, as the group continues to struggle with formidable market conditions, likely fomenting considerable headwinds for the share price. Downgrade to SELL on valuation grounds.

Source: OCBC Research - 18 Jul 2016