SINGAPORE (June 13): UOB Kay Hian is maintaining its “hold” call on Singapore Press Holdings (SPH) with a higher target price of $2.46.

In a Wednesday report, analyst Foo Zhi Wei says, “Based on our page count of SPH’s The Straits Times, total page count was down 12.5% y-o-y in 3Q18.”

By segment, the Recruit, Classifieds and Display ads saw declines of 10%, 15% and 12% respectively. Except for Display ads, the 3Q18 decline represented an improvement from that seen in both the same period last year in 3Q17, as well as 2Q18.

The 12.5% y-o-y decline in page count is comparable to the 12.7% y-o-y decline seen in 2Q18. But is an improvement from 3Q17, which saw a 13.7% y-o-y decline.

“The figure reflects a q-o-q improvement, which is largely expected given that the third quarter is traditionally strong,” says Foo.

According to the analyst, there is a strong correlation between physical page counts and ad revenue falling. But this has weakened since 1Q18, due to smaller-than-expected revenue decline compared to the page count decline.

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This suggests that there may be underlying reasons such as higher ad density or more full-page ads that a simple page count does not capture.

“Another reason is the integrated marketing approach SPH has taken for its advertising, which presumably is driving higher take-ups,” adds Foo.

The analyst assumes that if 3Q18 sees a revenue decline of 9-10% y-o-y like in 2Q18 – which had a similar page count decline – full-year print revenue would shape up for a 10-11% decline.

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“Our assumption currently stands at a 13% y-o-y decline and we will look to 3Q18 actuals before revising our assumptions. A revision upwards to a 10-11% decline translates to FY18 earnings of $216-219 million,” says Foo.

The group’s incorporation of the actual holding value of M1 as of FY17, lifted its investments’ valuation from 38 cents to 45 cents, which caused the analyst to raise the target price.

Currently, the stock is up on positive sentiment arising from the move towards overseas property asset management and the lower-than-expected print revenue decline in 2Q18.

Future property acquisitions can help the group potentially offset earnings weakness in its media segment in the short-term and provide some share price support. Although this is a step in a more positive direction, Foo remains sceptical about the potential uplift given the property cycle in the target markets.

“Over the longer-term, SPH needs to fully address the short-comings of the media business in order to justify an earnings recovery and spur a re-rating,” says Foo.

As at 11.42am, shares in SPH are trading at $2.70 or 1.3 times FY18 book with a dividend yield of 4.8%.

SPH leans on property holdings as media business remains weak: UOB

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