• Boost from 701Search stake sale
• Sound approach to rationalization
• FV estimate updated to S$2.93

FY17 PATMI Boosted by One-time Divestment Gain

SPH reported that FY17 PATMI increased 32.0% YoY to S$350m mostly due to a gain of S$150m from a partial divestment of the group’s stake in the regional online classifieds business, and a fair value gain on investment properties of S$57m, which were partially offset by impairment charges of S$96m on the group’s magazine business and printing presses.

Excluding these one-time charges, however, FY17 recurring earnings declined 20% YoY and FY17 operating revenues also declined 8% lower as the core media business continued to suffer the disruption from digital media. The property segment, however, delivered steady results as revenues increased 1% YoY from higher rental income from the group’s retail assets.

We deem this set of results to be mostly within our expectations. A final dividend of 9 S-cents per share has been proposed, bringing total dividends in FY17 to 15 S-cents.

Sound Approach to Rationalizing Media Business

While there is no denying the impact of digital disruption on the group’s core media earnings – which continue to decline over the latest quarter – our view is that the management team’s approach in rationalizing the business is mostly realistic and sound. The group will complete a 10% staff reduction by this calendar year, incurring retrenchment costs of S$13m, and will also invest for new growth in terms of digital, data analytics, radio broadcasts, video and content marketing capabilities. This will also help the group better meet the changing needs of their market.

Since we have upgraded the stock to a buy rating three weeks ago, we note that the price has rebounded but, as we update our valuation model for the latest results and assumptions, our fair value estimate declines to S$2.93 versus S$3.25 previously. We therefore downgrade our rating to HOLD on valuation grounds.

Source: OCBC Research - 13 Oct 2017