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Singapore Press Holdings Ltd’s Third Quarter Results: Profit up but Here Are 3 Reasons to Be Cautious

Singapore Press Holdings Ltd (SGX: T39), or SPH for short, has faced multiple challenges in recent years. Disruption from digital platforms and advertisers shifting their marketing dollar away from traditional newspapers and toward digital platforms like Google and social media have affected readership and profitability at SPH.

SPH is trying to reinvent itself by transforming into a digital-driven company, but there seems to be a lot more to work on. In the third quarter of 2018, even though its operating profit increased, there were still signs of cracks in its business that could affect profitability going forward.

Print ad revenue continues its slide

Print ad revenue continues to decrease year-on-year. In the third quarter of 2018, advertising revenue from Display, Classified and Newspaper Ad decreased by 9.9%, 11.8% and 10.6% respectively.

This continues a longer running trend over the last few years. Below is a chart showing year-on-year print ad revenue decline in the last four quarters:

Source: SPH 3Q2018 earnings presentation

Digital revenue growing but cannot make up for loss in print ad revenue

In the nine-month period ended 30 June 2018, digital ad revenue increased 10% to S$41.8 million from S$38 million in the corresponding period in the last financial year. Despite the strong growth in digital ad revenue, it could not make up for the loss of income in SPH’s print ad segment.

Total revenue from the media segment decreased 9.9% over the nine-month period to S$497.4 million. Digital ad revenue, despite its growth, still makes up just 8.4% of total media revenue. With digital contribution still just a small contributor to the overall business, it might take a while before digital advertising revenue can finally move the needle for SPH’s media arm.

Additional Singapore property cooling measures might impact profitability at Woodleigh Residences Project

SPH is working with Japanese real estate developer, Kajima Development, to develop a private residential-cum-retail development at the new Bidadari estate that will offer about 680 residential units and close to 28,000 square metres of retail floor area. The development is targeted to be completed in the middle of 2022.

Unfortunately, the unexpected announcement of additional property cooling measures in July may impact demand and pricing strategies for the upcoming development. SPH’s management says that it is still “monitoring the potential impact” on this development project.

The Foolish bottom line

Long-term SPH investors were finally given something to cheer about this quarter, as better cost-management and lower impairment charges led to a 64% rise in third quarter profits to S$47.4 million.

But if we look beyond the headline numbers, there are still things to be concerned about. Investors should continue to proceed with caution and to monitor the company’s progress over the next few quarters.

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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 writer Jeremy Chia doesn’t own shares in any companies mentioned.