SINGAPORE (July 15): Analysts have adopted a neutral stance towards media and property group Singapore Press Holdings (SPH) since its FY20F profit guidance is looking to drop significantly from the $187 million logged in FY19.

This follows the worst-ever drop in print advertisement revenue in 3QFY20 ended June, where display and classifieds were down 55.8% and 42.7% year-on-year, respectively. Digital advertisement revenue simultaneously dipped for the first time as companies cut back on discretionary spending.

Advertising is now showing signs of a pick up, following the Phase 2 measures which kicked off on June 19, the company notes in a July 13 regulatory filing.

Conversely, SPH recorded a 9.5% increase in total circulation with digital readership inching up. Specifically, the Straits Times saw 13,500 subscriptions (55% new), Zaobao and Wanbao had 16,180 (75% new) and Berita Harian received 1,930 (85% new), as at June 8.

“Thanks to the government’s job support scheme (c.S$46m to contribute over FY20-21F), we understand that [SPH’s] media business was profitable in 3Q despite the revenue headwinds,” observes CGS-CIMB analyst Ngoh Yi Sin in a July 14 note.

However, the same cannot be said of its retail malls, which experienced lower footfall during the circuit breaker and Phase 1. Paragon saw a 59% year-on-year decline in visitors, while Clementi Mall was down 52% and The Seletar Mall was down 29%.

Most tenants have since resumed operations, but the company notes that “current footfall is not yet at pre-Covid-19 levels”.

The tenants’ assistance scheme requiring landlord action to help tenants tide through their disrupted operations have also deepened SPH’s holes.

As for its operations of Purpose Built Student Accommodations (PBSAs), the company received £4.6 million ($8.04 million) – the lower end of its previous guidance – as refunds for the disrupted occupancy at its UK facility.

For now, it has achieved 75% of its target revenue for the 2020/21 Academic Year. This follows the UK government’s confirmation on the opening of universities in the new academic year, with “minimal or no delays”.

Meanwhile, its aged care business remains stable with higher average bill size and bed occupancy ratio at Orange Valley, Singapore, and two upcoming asset acquisitions (161 beds) to be completed in Japan.

Still, SPH thinks there is risk of a negative revaluation of its investment properties come 4QFY20F, particularly for its assets in Australia, Singapore and UK. It is looking to mitigate this through the $39 million gains from an earlier divestment of its AXA Tower and the land utilized for data centre development.

This follows it's recent sale of its Genting Lane property to support its 40% joint venture with Keppel Data Centre. DBS analysts Alfie Yeo and Andy Sim reckon this will have "marginal benefit to Earnings Per Share with little or no hope of distributing sale proceeds as dividends". 

With this in mind, Ngoh sees “limited earnings visibility and catalysts in the near term, supported by its dividend yields of 4.0 – 6.3%”.

“We slash our FY20-22F EPS by 13.1-22.8% to account for the accelerated media revenue decline, and slower-than-expected recovery in retail malls. This also led to our FY20-22F dividend per share cuts, which are primarily funded by dividends from SPH REIT and divestment gains,” she elaborates.

OCBC analysts concur, noting that the company’s media business, in particular, “remains soft due to the uncertain business outlook”. “The viral outbreak has negatively impacted the group’s key businesses and is expected to continue to weigh on overall growth,” they add in a July 14 note.

To this end, CGS-CIMB’s Ngoh and OCBC’s analysts have posted “neutral” or “hold” calls on SPH at $1.35.

Touching on their $1.35 target price, OCBC’s analysts say the price implies 15x forward prive-to-earnings ratio. “SPH’s share price has been 20% below the Straits Time Index since 8th April. With the removal of near term yield support and earnings pressure expected to persist, SPH’s share price performance is likely to be modest,” they add.

Ngoh’s call is down 22 cents or 14.01% from her previous $1.57 target.  She believes the new price gives the media and property counter a 7.2% upside from its $1.26 close on July 14.

DBS' Yeo and Sim meanwhile also have a "hold" call, but at a lower target price of $1.26.

"We are neutral on the stock, as new revenue streams from the acquisitions are eroded by a decline in Media business," they explain in a July 16 note. "We therefore believe it is not time to be positive until the Media segment’s revenue decline has petered out".

As at 1.22pm, shares of SPH were down a cent or 0.8% to $1.24.