• Weak earnings within expectations
• Ad outlook remains soft
• Continued focus on cost discipline

1QFY17 PATMI down 44% YoY

SPH’s 1QFY17 PATMI declined 43.8% to S$45.7m mostly due to a S$15.9m charge arising from the media business review and impairment of an associate, and a decline of S$12.6m in profits from the media business. We also saw a S$1.8m net loss from investments over the quarter due to fair value losses on forward hedges for portfolio investments, versus a net gain of S$10.3m in the same quarter last year. In terms of the topline, group revenues in 1QFY17 similarly fell 6.0% YoY to S$278.3m due to the impact from a slowing economy and ongoing disruption of the media industry.

Revenue contributions from the group’s key media segment dipped 9.5% YoY in the latest quarter as advertisement revenues decreased 13.5%. While this quarter’s earnings were fairly weak, they came in mostly within our expectations and 1QFY17 PATMI now constitutes 20.0% of our full year forecast.

No respite for ailing ad business

Ad demand continued its decline over the latest quarter. Total newspaper ad revenues dipped 15.0% YoY in 1QFY17 as classified and display figures both declined 16.0% and 12.5% YoY, respectively. Circulation revenues, however, increased 1.8% YoY as the group increased newspaper cover prices in March last year.

The management team has been focused on cost management and, excluding the one-time S$15.9m charge this quarter, the group’s operating expenditure fell 5.2% YoY and we understand that SPH will be implementing wage restraint measures in 2017 to further contain costs.

Maintain SELL with S$3.41 FV estimate

On the brighter side, SPH’s property segment continues to show resilience with revenue contributions up 1.3% YoY to S$60.5m. Given the uncertain economic outlook and the continuing disruption of the media industry, we expect conditions to remain challenging for the group’s media business ahead. Maintain SELL on the stock on valuation grounds with an unchanged fair value estimate of S$3.41.

Source: OCBC Research - 16 Jan 2017