Analysts put SPH on 'hold', but is the end of its earnings decline in sight?
SINGAPORE (Oct 17): Analysts across three brokerages – UOB Kay Hian, OCBC Investment Research, and CGS-CIMB Research – have “hold” recommendations on Singapore Press Holdings (SPH), as the group performed below expectations for FY18.
SPH saw its full-year earnings fall 19.7% to $281.1 million for the FY18 ended August, from $350.1 million a year ago. However, this was mainly attributable to the absence of a one-off gain of $149.7 million a year ago from the divestment of a joint venture.
FY18 operating revenue fell by 4.8% to $982.6 million, from $1.03 billion a year ago.
See: SPH FY18 earnings fall 20% to $281 mil on absence of divestment gain
“While the media business remains in decline, the pace is slowing,” says UOB analyst Foo Zhi Wei in a report on Tuesday.
UOB is maintaining its “hold” call on SPH, but raising its target price to $2.75, from $2.58 previously.
The way Foo sees it, earnings contribution from SPH’s recent student accommodation purchase could fully offset the decline from its media business, while on the property front, full-year contributions from the recently-acquired Rail Mall will help to offset the negative rental reversions at Paragon.
“Coupled with earnings accretion from the M1 deal, an earnings base could be forming,” says Foo. SPH and Keppel last month announced a pre-conditional voluntary offer for M1 at $2.06 per share.
See: SPH and Keppel in $2.06/share offer to privatise M1
However, OCBC analyst Joseph Ng warns that “headwinds [are] still lurking” and there are “reasons to be cautious still”.
“While the y-o-y percentage decline in media operating revenue dropped substantially from 13.9% in 1Q18 to 7.4% in 2Q18, this has now creeped up to 8.5% in 4Q18,” Ng says.
OCBC is maintaining its “hold” call on SPH and raising its fair value estimate marginally by 3 cents to $2.55.
Notably, Ng highlights that SPH’s dividend per share was cut from 15 cents in FY17 to 13 cents in FY18 – representing the sixth consecutive year of cuts. This was below the median consensus expectation of 15 cents.
“All considered, we deem this set of results to be broadly below expectations,” says Ng.
Meanwhile, CGS-CIMB has downgraded SPH to “hold” from “add”, and lowered its target price to $2.74 from $2.88.
CGS-CIMB analyst Ngoh Yi Sin says this is due to limited near-term catalysts and upside.
“As the group continues to strike strategic partnerships with key stakeholders and enhance its digital analytics capabilities, we believe its digital revenue contribution could grow gradually (from 15% of total media revenue currently),” Ngoh says.
“However, these initiatives will require time and more investments, which could weigh on its dividend-paying capability,” she adds.
In the longer term, Ngoh says CGS-CIMB is “likely to turn more positive upon greater visibility of a turnaround in the media segment, faster capital recycling through overseas property asset management, and successful collaboration with Keppel on the business transformation of M1”.
Shares in SPH closed 4 cents lower, or down 1.5%, at $2.58 on Tuesday. According to CGS-CIMB valuations, this implies an estimated price-to-earnings ratio of 19.9 times and a dividend yield of 5.0% for FY19.
