■ Media PBT margin weaker yoy in 3QFY18, but could stabilise with better control of staff costs and increasing shift towards to e-paper to mitigate higher newsprint prices.
■ Enhanced data analytics and digital capabilities could support the growing momentum of digital circulation and ad revenue.
■ Maintain Add given FY18-20F dividend yield of 5.5% and potential catalysts from successful acquisitions of cash-yielding property assets overseas. Read More
Small wins in digital portfolio; impairment resurfaces
SPH’s 3QFY18 headline PATMI surged 64.3% yoy to S$47.4m, boosted by contribution from aged care and education, S$12.5m net disposal gains from the sale of SPH-owned Qoo10’s Japanese subsidiary and 702 online classifieds in Thailand, as well as lower impairment (vs. 3Q17: S$37.8m). However, it missed our forecast of S$52m-57m due to S$22.3m impairment charges on its online classifieds business. Excluding these one-offs, SPH's 3Q/9M18 core PATMI met our and Bloomberg consensus full-year forecasts.
Media earnings decline moderating
We were not surprised by the 8% decline in 3QFY18 media revenue, similar to that in 2QFY18. Nonetheless, the decline narrowed vs. 10-15% in previous quarters. 9M18 operating expenses fell 2.5% yoy as a lower headcount led to S$10.8m cost savings. We remain wary of rising average newsprint prices amid a global shortage, but the shift towards e-paper readership and reduced monthly consumption could help mitigate SPH's costs. A stabilising media business could re-rate the stock, in our view.
Digital efforts gaining traction
We see the growing digital circulation (+43.5% yoy to 399k copies) and digital ad revenue (+10% yoy) as positives for SPH; digital revenues now account for 14% of total media revenue (1H18: 12%). With a sharper focus on data analytics, digital capabilities and strategic hires, we think SPH would be able to gain stronger penetration into the digital population and provide more compelling integrated marketing solutions to its advertisers and consumers.
Sustained property performance
Accounting for c.60% of SPH’s overall profitability, the property segment continues to deliver a steady income stream with 3QFY18 earnings stable at S$39.6m. We expect the recently-acquired Rail Mall to contribute from 4QFY18F. As for the upcoming launch of Woodleigh Residences, management is still monitoring the local property market post the government's cooling measures. We keep our forecast of S$1,850 psf ASP for now but allocate a wider discount to the RNAV of Bidadari project in our SOP valuation.
As we adjust for higher tax rate and financing costs, our FY18-20F EPS fall 0.4-3.3%. Our SOP target price rises to $2.88 due to higher DCF valuation of the media operations. Maintain Add, with 5.5% FY18-20F divided yield and potential catalysts from successful diversification into cash-yielding real estate assets overseas (actively pursuing pipeline of deals in defensive sectors) and expansion of its aged care business by building on the Orange Valley brand. Downside risks: poor ad revenue and weak overseas execution.
Source : CGS Research
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