Singapore Press Holdings Limited Reports Dismal First Quarter Earnings: Is The Company Losing Its Lustre?

Yesterday evening, Singapore Press Holdings Limited (SGX: T39) released its results for the first quarter of the financial year ending 31 August 2015 (FY2015). The headline numbers did not look good: Operating revenue for the quarter declined 6.5% year-on-year to S$307 million while profit slumped 21.9% to S$69.4 million.

Singapore Press Holdings, which is popularly known as the firm responsible for the national broadside The Straits Times, actually has three main 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:

SPH's quarterly revenue breakdown

Source: Singapore Press Holdings’ earnings release

From the table above, it’s easy to see that the Newspaper and Magazine segment contributes the lion’s share of revenue for the company (the segment made up 76.74% of total revenue in the first quarter of FY2015). Within the Newspaper and Magazine segment, the bulk of revenue comes from advertising. Unfortunately, as my colleague Ser Jing has shown previously, advertising revenue has started to decline since FY2010.

This trend continued in the first quarter of FY2015, as Singapore Press Holdings reported that its total newspaper ad revenue for the period had shrunk by 8.6%. A possible reason for this phenomena could be the general population’s increasing preference for online media as compared to traditional print media – with lesser eyeballs on the latter, its value proposition for advertisers would decrease in tandem.

Meanwhile, the Property business managed to clock a small increase in revenue mainly due to higher rental income from Paragon and The Clementi Mall. Singapore Press Holdings has interests in the two malls due to its majority ownership of SPH REIT (SGX: SK6U), which owns both malls. SPH REIT had released its own quarterly earnings on Monday evening and you can take a look at a review of its performance here.

Lastly, revenue from the Others segment also dipped and that is largely attributable to lower revenue from the segment’s exhibitions business. The decline was partly mitigated by  improved performance from the segmet’s radio and online classifieds businesses.

Prospects and valuation

In the earnings release, Singapore Press Holdings mentioned that its Property segment may see better performance in the future as the newly-opened Seletar Mall (the mall was opened only last November) is now fully leased and can contribute to the company’s property business from the second quarter of FY2015 onwards.

Alan Chan, chief executive of Singapore Press Holdings, also gave a brief overview of the new plans and initiatives which the company is undertaking to kick-start growth:

“We have marked the beginning of FY2015 with new initiatives in the digital sphere. During the quarter, the Group acquired a 60% stake in CoSine Holdings which offers real-time information and other services for efficiently transacting real estate in Singapore. The newly acquired business will also complement the offerings of our digital classified portfolio. On a separate note, our regional online classified business, 701Search, inked an agreement with Naspers Limited to establish joint ventures for the development of online classified platforms in several regional countries.”

“These initiatives came fresh on the heels of the Group’s foray into the education business in August 2014 with an investment of 22% stake in Mindchamps, a local pre-school and enrichment programmes provider. Amid a rapidly evolving media landscape, we will continue to evaluate and pursue new opportunities that position the Group for sustainable growth, whilst intensifying our efforts to reinvigorate the core media business.”

Interestingly, Singapore Press Holdings continues to see rising staff costs despite experiencing a falling headcount. In FY2014, the company completed an organizational review and one of the steps toward building a stronger business was to become a leaner machine. But while the company’s average headcount had decreased from 4,322 in the first quarter of FY2014 to 4,310, staff costs had actually inched up by 1.7%. Given such a backdrop, the efficacy of the company’s staff-cutting measures remains to be seen.

Based on its closing price of S$4.11 yesterday, SPH is being valued at 18 times its trailing earnings. It also carries a dividend yield of 5.1%.

Foolish Takeaway

Singapore Press Holdings is putting in place measures to arrest the slowdown in its most important Newspaper and Magazine business segment – their effectiveness would be something for investors to note. Meanwhile, the company is also busy acquiring other online platforms and businesses in a bid to drive growth. Investors interested in Singapore Press Holdings should also keep a watchful eye on whether the company has been making smart acquisitions.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.