• SPH's 1QFY20 PATMI of S$46.3m (-17.2% y-o-y) met our/consensus expectations.
• Media PBT (-54.5% y-o-y) formed 13% of 1QFY20 underlying PBT; we see little value ascribed to its media unit at current price (vs. our SOP valuation).
• We expect property PBT (1QFY20: +38.2% y-o-y) to continue growing, thanks to its retail and PBSA acquisitions. Possible value unlocking is a key catalyst.

1QFY8/20 PATMI Decline of 17.2% Y-o-y Within Expectations

• SINGAPORE PRESS HOLDINGS (SPH, SGX:T39) reported 1QFY8/20 net profit of S$46.3m, deemed in line at 29% of our and 28% of Bloomberg consensus full-year forecasts as Sep-Nov is a seasonally stronger quarter for its media business.
• Its 17.2% earnings decline was mainly due to lower topline (-4.1% y-o-y) and higher opex (+6.1% y-o-y). Non-recurring items included a S$7.2m restructuring cost for media and a S$10.5m fair value gain due to the adjustment to the purchase consideration of the Mayflower purpose-built student accommodation (PBSA) portfolio.

Dwindling Media Contribution

• Media segment, which accounted for 13% of 1QFY20 underlying PBT (FY19: 25%), continues to face cuts in advertisers’ budget and lower profitability despite its digital transformation initiatives (newspaper digital ad revenue: +8.8%). Advertisement sales fell 16.1% y-o-y across display, classified and newspapers, while circulation revenue was also 4.3% lower y-o-y.
• Excluding the retrenchment costs and partially mitigated by lower staff and production costs, 1QFY20 media PBT would still be weaker at S$14.7m (1QFY19: S$32.3m, 4QFY19: S$2.5m).

PBSA, REIT Acquisitions Underpin Property Growth

• Property segment continues to outperform, helped by a 10.9% rental reversion in SPH REIT (SGX:SK6U) (now 66%-owned). Post 1QFY20, we expect stronger property contribution from the 2nd Australia mall acquisition (50% stake in Westfield Marion Shopping Centre) by SPH REIT, as well as the £448m Student Castle UK PBSA purchase in Dec.
• According to management, the cap rate for SPH's overall portfolio stands at sub-5%. With the recent perps issuances (SPH: S$450m, SPH REIT: S$300m), we think both companies have sufficient debt headroom to pursue more inorganic growth while sustaining their 5% yield.
• SPH has a 0.25x net gearing as of end-1QFY20, which could allow it undertake more acquisitions to grow its current S$1.5bn portfolio, before possibly unlocking value.

Maintain HOLD

• We cut our FY20-22F EPS by 5.4-6.5% to reflect the additional S$300m perps issuance in Nov, but our SOP-based Target Price rises slightly after factoring in a bigger asset under management (AUM) for its PBSA.
• Maintain HOLD on poor earnings outlook, but supported by its 5.1% dividend yield; we see value emerging closer to S$2.11 (our SOP Target Price with zero value for media segment).
• Upside risks to our HOLD call are accretive M&As and faster capital recycling.
• Downside risks could stem from deteriorating media performance and slower local property outlook.

Source: CGS-CIMB Research - 14 Jan 2020