• SPH (SGX:T39)'s 1HFY8/20 PATMI of S$77.6m (-9.3% y-o-y) was largely in line; we expect further downside in 2HFY20F and possibly FY21F if Covid-19 prolongs.
• Interim DPS cut to 1.5Scts (1H19: 5.5Scts).
• M&As put on hold, and there is potential impairment risk to its S$6.4bn worth of investment properties.
• Our HOLD call is supported by 5% FY20F dividend yield and trading valuation below book (0.7x FY20F P/BV).
• Catalyst: faster recovery from Covid-19.

1HFY8/20 in Line But Downside Risk in 2HFY20F

• SPH reported 1HFY20 PATMI of S$77.6m (-9.3% y-o-y), broadly within our and Bloomberg consensus expectations, but we cut our FY20-22F EPS by 5.1-17.8% as we expect further weakness across its media, retail and student accommodation (PBSA) businesses amid the Covid-19 outbreak.
• Media was the key drag in 2QFY20 with lower advertising demand across most segments except for government spending; this caused a decline in 1HFY20 core PBT margin to 6.9% (1HFY19: 14.2%).
• Higher digital revenue (+13.3% y-o-y) and digital readership (Jan:1.4m, Feb:5.6m) were the positives in 1HFY20 for SPH.

Lower Interim DPS of 1.5Scts to Conserve Cash

• SPH declared an interim DPS of 1.5Scts (1H19: 5.5Scts), following SPH REIT (SGX:SK6U)'s (its 66%-owned subsidiary) DPU cut to 0.3Scts (-79% y-o-y).
• Despite a higher net gearing of 0.5x as at end-Feb, we are not overly concerned given its 5.2x interest coverage ratio and weighted average debt to maturity of 3.1 years.
• Lower mall footfall, coupled with the provision of rental rebates and relief to affected tenants in Singapore and possibly Australia, would impact SPH REIT's near-term property income contribution.

UK PBSA Also Not Spared From Covid-19

• As the number of confirmed Covid-19 cases continues to climb in the UK and it enters a 3-week lockdown, SPH has offered students tenants the option to leave their AY19/20 tenancies with partial refunds, and would also suffer from loss of summer term income.
• Based on the current occupancy level, the group estimates a revenue loss of £4m–8m (S$7m-14m) in FY20F. Extended lockdown measures could further weigh on AY20/21 rental income from its S$1.5bn purpose-built student accommodation (PBSA) portfolio.

Maintain HOLD With Lower EPS and Target Price

• Our SOP-based target price falls to S$1.57 on EPS cuts and greater holding discount (previously 10%). Our HOLD rating is underpinned by its 5% dividend yield and trading valuation of 0.7x FY20F PBV.
• Meanwhile, we see potential impairment risk to its investment properties (S$6.4bn as at end Feb 2020) in the retail and student accommodation sector in event of a protracted outbreak.
• We expect SPH’s investment activities to be put on hold, including its capital recycling plan for its UK PBSA assets, after it suspended the proposed acquisition of six aged care assets in Canada.

Source: CGS-CIMB Research - 8 Apr 2020