Is Singapore Press Holdings Ltd a Buy?

The market has certainly not been kind to Singapore Press Holdings Ltd (SGX: T39), or SPH for short.

In the last five-year period, SPH’s share price has dropped 37% from its peak of S$4.35 to its current price of S$2.65. With its price just slightly above its five-year low of S$2.44, investors might be wondering whether now is a good time to buy shares of the STI component stock.

In addition to its stock being near a multi-year low, some might point to the fact that at its current price, SPH’s price-to-earnings (PE) ratio of 12.5 is well below its long-term average historical PE ratio. This may suggest that SPH shares might be considered a bargain.

However, there’s another way to look at this. Despite the seemingly low valuation, SPH has faced multiple challenges that have eroded into its core business, and that might further dampen its profitability in the future. The historical valuation of the company, therefore, should not be considered a viable marker due to the vastly different market conditions.

Here are some trends that suggest that the company’s profitability cannot return to its former glory days anytime soon.

Declining print readership

It is no secret that the emergence of online media has had a crippling effect on traditional print newspapers and readerships. Not only does the Internet provide faster access to news, there are also many free news outlets that provide reliable news information completely free.

Unsurprisingly, SPH’s traditional print readership has, therefore, been on a consistent decline over the last 10 year-period and accelerated further downwards in the last five years. The graph below shows the readership trend of its print newspapers:

Source: SPH FY2017 annual report

Digital revenue still only a small contributor

SPH has attempted to reposition itself to capitalise on the digital boom by moving most of its newspapers online. With the introduction of different-tiered digital memberships to cater to price-sensitive readers, the company has been able to grow its digital reader base by a compounded annual rate of 18% since 2013. However, even with more readers on its online platform, digital revenue only contributes a meagre amount to the overall revenue.

Only time will tell whether the group’s “digital first” strategy will have a meaningful long-term impact that can negate the effects of the declining print revenue.

Negative rental reversions in its investment property

In addition to its media business, SPH has an investment property segment. It owns Seletar Mall and has a 70% stake in SPH REIT (SGX: SK6U), which owns The Clementi Mall and Paragon. The property segment has become an important contributor to its property income of late, contributing about 60% of its net profit.

Unfortunately, like its media segment, its investment property arm has faced challenges in recent years. Renewed or new contracts signed in the six months ended 28 February 2018 for Paragon and The Clementi Mall were 7.1% and 2.5% lower, respectively than last year. The lower rental rates will most certainly have a negative impact on SPH’s rental income in the future years.

The Foolish bottom line

Warren Buffett is a keen believer in buying companies that have built wide economic moats to make it difficult for competitors to encroach on their business.

SPH used to have a strong brand recognition with its plethora of newspapers catering to Singaporeans from different backgrounds. However, the emergence of online media and free worldwide news has led SPH’s media segment to suffer declining readership and lower advertising revenue. Its one-time economic moat and position as a leading newspaper provider in Singapore have been heavily eroded. Despite trading at seemingly low valuation and well below its historical average, the SPH share price is most certainly not a buy in my view.

Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know--and we've laid them all out in The Motley Fool Singapore's new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge--simply click here now to claim your copy.

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