SINGAPORE (Jan 16): Singapore Press Holdings’ results for 1Q17 failed to meet analysts’ expectations after earnings fell by 44% to $45.7 million.
CIMB noted that the group’s earnings only achieved 18% of its full year estimates and has maintained its “reduce” recommendation for SPH with a lowered target price from $3.35 to $3.31.
During the quarter to November, the group’s earnings had been hit by one-off charges of $15.9 million from the review of their media business and the impairment of an associated company, as well as a $1.8 million fair value loss on hedges for its portfolio investments.
CIMB’s Jessalynn Chen notes that the one-off charges included $7.2 million in retrenchment and outplacement benefits, $2.6 million in impairment charges on a printing press line for capacity optimisation, and $4.8 million in impairment charges for the restructuring of an associate in the video business.
As of end Nov, the group had reduced its headcount by 2% to 4,107. Excluding the extraordinary items, Chen estimates that the group’s operating profit would have fallen by 12%.
The key lies in the 14% decline in SPH’s advertising revenue, despite the marginal increase in circulation revenue from a higher cover price. In fact, Rachael Tan and Cheryl Lee, analysts from UBS, are not optimistic that SPH would see a recovery in earnings within the next few quarters.
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“Our Straits Times Saturday weekly page tracker shows a 17% decline for Dec-16 to Jan-17 so far, pointing to further weakness in advertising revenue, which accounts for a hefty 52% of total revenue,” they said in a note on Monday. “In addition, we expect staff-resizing costs to continue as the Group progresses towards its 10% staff reduction target.”
UBS has a “sell” rating on SPH with a target price of $3.13. Tan and Lee also lowered their earnings forecast by 4% for FY17 and FY18.
On the back of the 1.3% gross domestic product (GDP) growth forecast for 2017, DBS Group Research’s Alfie Yeo and Andy Sim anticipate that Singapore’s industry advertising expenditure will fall further by 7%, from the 5% decline previously.
To that end, DBS has a “fully valued” rating for SPH with a target price of $3.32.
Shares in SPH are trading at $3.57 on Monday.
