• Narrowing print advertisement decline
• Digital push still needs time
• FV estimate revised to S$2.52

2QFY18 Results Within Expectations

SPH’s 2QFY18 results were largely in-line with our expectations. Operating revenue fell 1.8% YoY to S$233.7m, as advertisement and circulation revenue both fell by 9.3% and 7.5%, respectively. Encouragingly, we note that the 11.1% YoY decline in print advertisement represents a narrowing deficit, given the 21.5% YoY drop registered back in 3QFY17. The group’s property segment revenue dropped 2.4% to S$60.5m on the back of lower rental income from the group’s retail assets.

Notwithstanding this, management seemed relatively positive about the latest rental renewal cycle at Seletar Mall. For 1HFY18, operating revenue stood at S$492.5m, comprising ~51% of our full-year forecast. All in, the group’s 2QFY18 PATMI was down 24.9% YoY to S$40.2m. An interim dividend of 6 S-cents per share was declared, which is unchanged from the same period last year.

Digital Circulation Still the Key

We believe SPH’s digital-first strategy hinges on the group’s ability to ramp up its digital circulation count, which would underpin and sustain the appeal and viability of its integrated marketing offering. To this end, we note that the daily average digital circulation has seen an increase of 112k copies from 2QFY17 – 2QFY18. However, with the 7.5% drop in circulation revenue in 2QFY18, we believe that more time is needed for the ramp up in digital circulation to arrest the decline in print subscriptions.

The group has introduced a Straits Times Basic Digital package last month, targeting the price sensitive customer segment, and we believe that this, together with similar offerings for other digital publications moving forward, should help to increase digital penetration in a meaningful way.

Good Ol’ Property

With the digital pivot being more medium-term in nature, we believe the group’s property segment will continue to bolster near-term earnings, as evident by it accounting for ~60% of the group’s 1HFY18 profit. Development of The Woodleigh Residences and recurring income from the group’s fourth retail mall should also aid in bottom-line growth, albeit in the medium term.

Following assumption adjustments, we increase our fair value slightly from S$2.51 to S$2.52. Based on the closing price as at 11 Apr 2018, SPH trades at a FY18F dividend yield of 6.0%.

Source: OCBC Research - 12 Apr 2018