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Why Did Singapore Press Holdings’ Second Quarter Profit Crash?

SPH

Newspaper publisher and property developer Singapore Press Holdings (SGX: T39) released its 3rd quarter results for financial year 2014 (FY2014) on Tuesday evening after the market closed. Operating revenue for the quarter was down 4.7% year-on-year to S$309.7 million while profit plunged 52.2% from S$187.5 million to S$89.6 million.

The sharp dive in SPH’s profit is primarily due to a one-off S$111.4 million fair value gain for the company’s investment properties that appeared in the corresponding period a year ago; SPH had changed its accounting for the properties from cost to a fair value basis back then.

Despite the marginal drop in revenue, SPH’s operating profit, which represents recurring earnings from the company’s media and property business, actually increased by 7.5% to S$98.4 million compared to a year ago. The growth in operating profit could be attributed to overall cost savings of S$23.2 million.

SPH is organised into three major operating segments – Newspaper and Magazine, Property, and Others. Here’s a breakdown of how the company’s top-line had changed for each individual segment:

Operating Revenue 3Q 2014 3Q 2013 Change (%)
Newspapers & Magazine S$239.5 million S$259.3 million (7.6)
Property S$51.0 million S$50.2 million 1.6
Others S$19.2 million S$15.5 million 23.8

Source: Singapore Press Holdings’ earnings release

From the table above, it’s easy to see that the Newspaper and Magazine segment is the staple for SPH, contributing the largest share of revenue. But unfortunately, the segment is also facing a decline in its advertising and circulation revenue; in fact, advertising revenue has declined year-on-year since FY2012. A possible reason for the phenomenon could be the general population’s increasing preference for online media as compared to traditional print media.

Meanwhile, SPH’s other 2 segments saw their top-lines increase. For the Property segment, higher rental income and full occupancy rates helped contribute to the segment’s growth. The segment’s results come from the retail malls Paragon and The Clementi Mall – the only two properties that are currently owned by SPH REIT (SGX: SK6U) (SPH is a majority owner of the REIT). Investors in SPH can also look forward to the company’s newest retail development, Seletar Mall. It’s slated for completion this December and “will be the largest suburban lifestyle hub in the North-East” of Singapore when it’s up and running. Incidentally, there’s a possibility that SPH could inject Seletar Mall into SPH REIT in the future.

In the Others segment, higher contributions from its radio and online classifieds businesses were the main drivers for growth. The other businesses under the segment include an exhibition planning services and outdoor media.

Prospects & valuation

Other than the operational highlights and figures given above, there are still other pointers to take away from SPH’s commentary on its results. For instance, although the Newspaper and Magazine segment is facing headwinds due to (what seems to be very likely) structural shifts in consumer behaviour, newsprint prices are still expected to be fairly stable in the near term.

Mr. Alan Chan, Chief Executive Officer, had the following to say about SPH’s outlook for the rest of FY2014:

“In response to the rapid changes in the media industry and structural shifts in consumer behaviour, the Group has embarked on a journey of restructuring and transformation. To-date, we have made progress and the Group will continue to intensify its efforts to address the evolving media landscape whilst pursuing growth opportunities.”

The company’s shares last traded at S$4.14 on Wednesday. Based on that price, it is valued at 18.5 times trailing earnings and carries a dividend yield of 3.63%.

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