SPH - Falling Dividends

• Core earnings in line

• Final and special DPS was lower at 13 Scts, with full year DPS at 20 Scts vs 21 Scts last year

• Slower economic growth a dampener to ad spend, earnings and DPS expectations

Maintain FULLY VALUED and S$3.51 TP

Highlights
Core 4Q15 and FY15 earnings in line, DPS disappoints. 4Q15 revenue declined by 2% y-o-y while operating profit fell by 4%. Topline continues to be dragged by lower circulation and adspend, while higher staff headcount weighed on operating margins. Nonetheless, headline net profit of S$322m for the full year outperformed our estimates by 8% due largely to fair value gains from SPH REIT. A final and special DPS of 8Scts and 5 Scts were declared, bringing total dividends for the full year to 20 Scts. This is below our expectation of 21 Scts.

Outlook
Slowing GDP growth will lead to lower adex. We believe a weaker macroeconomic setting is likely to impact adex negatively.

Rising corporate and consumer interest rates, tepid export demand, higher cost environment, and weak consumer sentiment could prompt a cut back in consumer spending, and lead to
1) slowing demand for products and services, and

2) lower advertising expenditure by companies.

Notwithstanding its strong balance sheet, we do not discount the possibility of a further DPS cut led by declining earnings in FY16F/FY17F. Our earnings forecast remains largely unchanged as we had already reduced our earnings estimates earlier to reflect slower GDP growth and less positive adex outlook.

Technical Analysis
Daily Chart
Valuation: TP of S$3.51 based on sum-of-parts
Our target price of S$3.51 is based on sum-of-parts valuation. We value SPH's core newspaper and magazine operations at S$1.43/share based on discounted cash flow model. SPH’s 70% stake in SPH REIT is valued based on our target price of S$0.99. These two parts are added to the estimated value of Seletar Mall, net cash and investments, to derive our TP.

Key Risks:
Improvement in macroeconomic environment. SPH's advertising revenue is contingent on economic sentiment, and a turn for the better or worse could further impact its core advertising revenue. Key indicators include the general state of economy including GDP, interest rates and consumption spending, on which we currently hold a less positive view. We believe these will ultimately impact advertising spend and earnings negatively. Our view is premised on a declining adex, and thus an economic recovery with adex improvement will derail our negative view. (Read Report)

Read Related Reports
1) Singapore Press Holdings - 4Q15: Media weakness offset by tight cost management and property; slight dividend cut by Credit Suisse Asia Pacific Research, published on 14 October 2015

2) Singapore Press Holdings - Hold: Muted outlook, sustainable yield by HSBC Global Research, published on 14 October 2015

3) Idea Of The day - Singapore Press Holdings (SPH) by Lim & Tan Research, published on 14 October 2015

4) Singapore Press Holdings - Not looking up by CIMB Research, published on 13 October 2015

Source : DBS Group Research

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