• S$7.2m one-off retrenchment cost booked
• UK PBSA competition increasing
• FV of S$2.28

1QFY20 Results Came in Under Expectations

SPH’s 1QFY20 results came in below our expectations. Operating revenue fell 4.1% YoY to S$244.0m, on the back lower advertisement (-16.1%) and circulation revenue (-4.3%), though these were partially offset by higher property revenue from the group’s PBSA portfolio and Figtree. The group also recorded a one-off S$7.2m retrenchment cost associated with the media segment.

The group’s media business continues to struggle, with declines in newspaper print ad revenue still yet to find a bottom (-19.8% YoY; was -7.2% and -19.0% in 1QFY19 and 4QFY19, respectively). The group recorded a fair value gain of S$10.5m from its Mayflower student housing portfolio following an adjustment of the purchase consideration.

Share of losses of associates/JVs narrowed from S$2.4m in 1QFY19 to S$0.8m in 1QFY20, due largely to contribution from M1. Core PATMI came in at S$35.8m, comprising 22% of our full-year forecast.

Maintaining Fair Value of S$2.28

Prospects for the group’s media business remains challenging, with advertisers scaling back due to the uncertain business outlook. Still, media’s current contribution to PBT is relatively low at ~11% in 1QFY20, down from the ~43% level seen in 1QFY19.

Moving forward, we believe the group’s property vertical will continue to be the key area of focus to bolster recurring income, as seen by the post- 1QFY20 addition of 2,383 beds to its UK PBSA portfolio and the expansion of SPH REIT into Adelaide. This brings the group’s PBSA portfolio to 7,726 beds across 18 cities in 2 countries. Still, there appears to be growing recognition that it might be increasingly difficult to bulk up in the UK.

For its latest Student Castle portfolio, we believe that the cap rate should be below 5%, while the blended basis of the group’s larger portfolio is mid-5%. To that end, other markets like Germany might prove to be more attractive.

On the group’s joint project with Kajima in Bidadari, we believe that the group is pacing itself, with a view that 2H20 might potentially be a better period for sales. We maintain our FV of S$2.28 for now.

Source: OCBC Research - 15 Jan 2020