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Are there enough positive catalysts for SPH to see share price recovery?

Michelle Zhu
Michelle Zhu1/15/2018 10:14 AM GMT+08  • 3 min read
Are there enough positive catalysts for SPH to see share price recovery?
SINGAPORE (Jan 15): UOB Kay Hian is maintaining its “sell” call on Singapore Press Holdings with an unchanged target price of $2.42.
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SINGAPORE (Jan 15): UOB Kay Hian is maintaining its “sell” call on Singapore Press Holdings with an unchanged target price of $2.42.

This comes after the group reported 1Q18 net profit which came in line with expectations, down 12% y-o-y on lower advertising and circulation revenues.

See: SPH posts higher 1Q earnings of $60.4 mil on investments income; media revenue drops 14%

In a Monday report, lead analyst Foo Zhi Wei says he is raising SPH’s 2018-19 earnings by as much as 2% on lower staff costs to be offset by a steeper expected 12% decline in quarterly print revenue from a 10% decline previously.

Foo is therefore raising 2018 forecast net profit 2% higher to $214 million and 2019 forecast net profit 1% higher at $206 million.

Despite the smaller downside dividend risk, Foo reckons SPH’s share price will continue to slip "until evidence of positive developments manifests".

See also: RHB maintains 'buy' on Raffles Medical Group following strong revenue and China's reopening

Meanwhile, Lim & Tan Securities continues to rate SPH at “hold” while highlighting that valuations look fair at 20 times P/E ratio & 1.2 times book, with the Bloomberg consensus average target price at around the $2.50-$2.60 level.

Noting that investors are compensated 5+% yield to await the group’s transformation, the research team says SPH’s latest financial results reflect a moderation in declines from the past quarter, with its property segment delivering steady results.

“The group’s investible fund of $1.2 billion remains stable with equities accounting for 24.4%, investment funds 34.4%, bonds 37.3% and cash and cash equivalents 3.9%,” observes the team in a report on Monday.

See also: Citi is upbeat on CLI's China prospects, surprise upside from REITs

“Management maintains a conservative stance on investment allocation and remains focused on capital preservation. As a result, returns are expected to commensurate with the low risk return profile to help mitigate against the volatile investment environment,” it adds.

On the contrary, CIMB Research has upgraded its call on the group to “hold” from its former “reduce” rating while raising its target price to $2.49 from $2.38.

This was the result of factoring in MindChamps’ market valuation in which SPH has a 26.8% stake, as well as allocating a smaller discount of 10% compared to 15% previously.

In analyst Ngoh Yi Sin’s view, the group’s FY18-20 forecast dividend yield of about 5% could be a near-term support for its share price, with bottom-line recovery and successful diversification as key catalysts moving forward.

To be sure, SPH's share price has lost 25% since the start of 2017. "Upgrade from "reduce" to "hold" as we think the downside has largely been priced in, with 5% dividend yield," says Ngoh.

“Our FY18 EPS is lowered by 0.4% on lower property income, but we raise our FY19-20 EPS by 1.2-1.3% on higher media margin and healthcare contribution,” she adds.

SPH is currently trading at 19.7 times FY19 earnings, above its historical mean of 17.5 times.

As at 11.24am, shares in SPH are trading 7 cents higher at $2.70.

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