• SPH's FY19 core earnings in line, adex leads revenue decline.
• Final DPS of 5.5 Scts and special DPS of 1 Sct disappointed.
• Cut FY20-21F earnings by 10-11% to account for weaker GDP, revenue and earnings going forward.
• Maintain HOLD and S$2.19 Target Price.

Maintain HOLD With a Lower Target Price of S$2.19

• We maintain our neutral stance on SINGAPORE PRESS HOLDINGS (SPH, SGX:T39) as earnings continue to be dragged by lower adspend. Core FY19 earnings was in line with our estimate. We expect earnings growth outlook to be more challenging as our economist now expects 2020 GDP growth to be slower at 1.4% from 1.8% previously.
• In addition, we expect declining adspend revenue to continue putting pressure on earnings growth. We note that FY19 dividend was lower than expected at 12 Scts, vs our 12.5 Scts expectation. See SPH Dividend History.
• With a less optimistic earnings outlook, we lower our SOTP-based Target Price to S$2.19, to reflect our lower earnings projection on the back of a weaker macro outlook.

FY19 Core Earnings in Line, Dividend Below Expectations

• SPH's FY19 operating profit was in line with our estimate at S$260.5m (- 2.2% y-o-y). Headline net profit was S$213.2m (+24.1% y-o-y), above our expectations, largely due to fair value change of investment properties. Otherwise, core FY19 earnings was in line at S$155m after stripping out one-off gains. See SPH Announcements.

Media Leads Revenue Decline

• Revenue fell 2.4% y-o-y to S$959.3m, led by media segment which declined 12% y-o-y to S$576.9m.
• Property revenue grew 22% y-o-y to S$296.5m, boosted by UK student accommodation portfolio and Figtree Grove in Australia.
• The Others segment – conferences, nursing home, events, education etc - was flattish (+2% y-o-y, S$85.9m).

Lower Adspend Driving Lower Media Revenue

• The revenue drop in the media segment was led by lower adspend which declined by 12% y-o-y to S$390.1m while circulation fell by 7% to S$139.1m.

Lower Opex

• Operating costs were down by 3% y-o-y to S$717.2m largely due to staff costs (-5% y-o-y S$333.3m) on lower headcount and bonus provision, lower depreciation (- 18% y-o-y, S$27.4m), lower raw material costs (-6% y-o-y, S$134.9m) and other opex (-4% y-o-y, S$136.7m).
• Premises cost increased 21% y-o-y to S$85m on an enlarged property portfolio from Figtree Grove and its UK student accommodation portfolio.

Core PBT in Line

• Core PBT was 31% y-o-y lower at S$240.1m, due to lower investment income (S$9.8m vs S$115.2m in FY18) as SPH’s Treasury and Investment portfolio has largely been divested.
• Interest expense was 31% y-o-y higher at S$49.3m as debt increased by S$600m including the recently raised perpetual securities for working capital, M&A, capex, and refinancing purposes. This was in line with our estimate.

Dividends Below Expectations

• Final and special dividend were 5.5 Scts and 1 Scts respectively, bringing total dividend for FY19 to 12 Scts, which was lower than 13 Scts in FY18 and our 12.5 Scts estimate. See SPH Dividend History.

Macro Headwinds and Weak GDP Outlook

• SPH’s earnings continue to decline as the property segment is not growing fast enough to offset media segment’s decline. Slower adspend and circulation remain as key challenges to growth going forward. The dividend cut was also a disappointment.
• We continue to see headwinds for the media segment as GDP outlook is now weaker with our Singapore’s GDP forecast for 2019/2020 lower at 0.6% (-1ppt) and 1.4% (- 0.4ppt). SPH is streamlining its Media segment with a 5% staff reduction in the media group.

Maintain HOLD With Lower Target Price of S$2.19

• We lower our FY20-21F earnings by 10-11% largely to account for slower GDP and adspend and lower media/newspaper ops segment revenue.
• Our SOTP-based Target Price is now S$2.19, comprising core newspaper and magazine operations at S$0.07/share based on discounted cash flow model, properties at S$2.18, and net cash and investments (less perpetuals) at -S$0.06. See SPH Share Price.
• Maintain HOLD.

Where We Differ

• Our FY20F earnings estimate is below consensus as we see a slower earnings recovery after our economics desk further downgraded 2019 and 2020 GDP growth outlook to 0.4% and 1.4% respectively.

Source: DBS Research - 21 Oct 2019