Singapore Press Holdings Limited (SGX: T39), commonly referred to as SPH, just reported another poor set of results for the quarter ended 31 May 2019. Its media segment continues to be a drag on earnings. With that in mind, here’s a rundown of the most important highlights of those results and the key takeaways for investors.
The headline numbers
While topline figures eased by just 1.6%, operating profit plunged 36.6% due to lower media revenue and higher operating costs.
In particular, print advertising revenue has been on a downward trend over the last few years. Operating expenses also rose 5.5% due to the higher cost of the enlarged student accommodation portfolio, which SPH recently acquired.
The group ended with 2.0 Singapore cents in earnings per share, down from 3.0 cents in the corresponding quarter last year.
There were a few strong points to SPH’s recent quarter results.
Firstly, its digital push seems to be bearing fruit: The average daily sales of digital newspaper, in the third quarter, increased 22% from a year ago. Digital ad revenue, boosted by better circulation, also increased to S$43 million over the last nine months from S$41 million in the corresponding period in the last financial year.
Its property arm is also growing, as the group has committed US$55 million for a 6.8% stake in KBS Prime US REIT’s IPO. It is also investing 20% in the REIT manager, through a call option. These initiatives should provide SPH with greater recurring income from its property segment.
However, the quarter highlighted that SPH continues to face challenges in its media segment. Here are some reasons why investors should be concerned:
- In the nine months ended 31 May, print ad revenue declined 12.3%. Worryingly, print ad revenue from Classified was down 18.8%, an acceleration from the 12.9% decline in the comparable period last year.
- SPH is now more heavily reliant on property rental and services income. Its property arm brought in 80% of profit before tax, up from 55% last year. If this continues, SPH will more resemble a property company than a media one.
- The recent property and REIT investments will likely be earnings-accretive but they have resulted in a much higher gearing. SPH’s gearing now stands at 32.6%, up from 26% a year ago. The larger debt load may limit its capacity or management’s willingness to acquire more properties in the future.
The Foolish Takeaway
In a nutshell, it was another poor quarter for the media giant. The group is beginning to look more like a property company or a REIT than a media company. Its media arm is also continually dragging down profits each year.
Shareholders are still waiting for the day that digital revenue growth will make up for the shortfall in print revenue. Worryingly, that day still seems like a long way away.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Jeremy Chia does not own shares in any of the companies mentioned.