• 2QFY17 results below expectations
• Difficult operating conditions
• Property segment stable

2QFY17 results reflect difficult operating conditions

SPH announced that 2QFY17 PATMI dipped marginally by 1.2% YoY to S$53.5m while group recurring earnings on an operating level declined 22.2% YoY to S$53.0m, which was partially offset by a S$9.5m bump in investment income from divestment gains. The share of results of associates and joint ventures also rose S$3.1m YoY partially due to smaller losses from the regional online classifieds business. In terms of the topline, group operating revenue fell 8.2% YoY to S$238.0m mostly due to weaker contributions from the media business which fell 11.9% YoY. We deem this set of results to be marginally below our expectations and we tweak our FY17 net income forecast down by 6% to S$216.0m to reflect the difficult business conditions the group is facing currently. An interim dividend of 6 S-cents per share was declared.

Management focused on cost controls

1HFY17 ad revenues declined 16.8% YoY as management cited continued headwinds in its operating environments due to the slowing economy and the unabated disruption of the media industry. Revenues from display and classified ads similarly fell 17.5% and 14.4% YoY, respectively. The management team has been focused on cost management and total costs for the quarter fell 3.8% YoY to S$188.7m despite inflationary pressures.

1HFY17 staff costs dipped 0.9% YoY to S$182.4m as headcount as at end Feb 2017 stood at 4,041 which was 5% lower than the 4,255 last year. The group’s property segment pulled in stable numbers with revenues inching up 1.3% YoY as rental income rose and net property income grew 5.9% to S$93.9m.

All three retail assets held by SPH, i.e., The Paragon, The Clementi Mall and The Seletar Mall, enjoyed 100% occupancy and positive rental reversions over the quarter. 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 - 17 Apr 2017