Singapore Press Holdings Ltd Analysis

Incorporated in 1984, SGX listed Singapore Press Holdings Limited (SPH) is Singapore’s leading media organisation. SPH is more than just a traditional newspaper company – they do much more than that.

As a “blue chip” on the Singapore Stock Exchange, not only is SPH synonymous in Singapore’s investment community (1 of the 30 companies included in the Straits Times Index), they are also everywhere in Singapore. SPH is in all things media from your Straits Times newspaper to Men’s Health Singapore magazine to book publishers like Focus Publishing and Straits Times Press and they even have a 22% stake in the enrichment provider MindChamps. Did you also know that hardwarezone.com.sg and sgcarmart.com comes under their portfolio!

Given the competitive media environment we live in today, SPH also has other non-core business the likes of Property & events.

STOCK INFORMATION

1

TICKER SYMBOL: SGX:T39
MARKET CAP: S$6.05 Billion (Updated  29 Jul 2016)
MARKET PRICE / SHARE: S$3.78 (Updated  29 Jul 2016)
SECTOR: Communications
INDUSTRY:
 Publishing, Printing & Distribution of Media Content

THE BUSINESS

SPH operates in the following 3 core businesses:

1. Media (S$903 million | 77% of FY2015 Rev)

Media is involved in the production of content for distribution on print and other media platforms.

20% stake in MediaCorp TV Holdings Pte Ltd (Channel 5, Channel 8 & Channel U) and a 40% stake in MediaCorp Press Ltd (publisher of Today).

2. Property (S$231 million | 20% of FY2015 Rev)

Hold, manages and develops properties of the Group. At present the notable property directly under SPH’s portfolio is The Seletar Mall valued at S$495 million (FY2015).

On their Balance Sheet, their investment properties at S$3.9 billion take into account SPH REIT’s Paragon (S$2.76 billion) and Clementi Mall (S$572 million) – since SPH owns ~70% of SPH REIT, hence their assets are consolidated when presented as a Group.

However many might not know that other than the above and their print/media/news centres, SPH still has other notable properties in Singapore. For example, SPH owns 3 plots of freehold land along Nassim Road at ~1,400 sq m each – right about the size that makes up a good class bungalow! These are rather rare in Singapore nowadays, more so when they are on Nassim Road. You know that the location is prime when all the embassies are there.

3. Treasury & Investment (S$0 million | 0% of FY2015 Rev)

Although Treasury & Investment contributes to 0% of Revenue (due to classification that it is not a revenue generator), it contributes rather decently to the operating profit line with S$50 million for FY2015. Quite considerable given the Group’s operating profit at a total of S$438 million.

As at 31 Aug 2015, SPH had investable fund of S$1.2 billion. SPH has stated that their investments operate on a conservative approach with a focus on capital appreciation hence returns are expected to in line with low risk-return profile to mitigate against volatility. One such investment might be their 13.28% stake in SGX listed M1 Ltd through their wholly owned subsidiary SPH MultiMedia Private Ltd as well as a 15.58% stake in SGX listed iFAST Corporation Ltd through SPH Asia One Ltd. Since inception in 2001, SPH’s portfolio has generated a return of 4.1%.

SPH FAQ
SPH FAQ

4. Others (S$44 million | 4% of FY2015 Rev)

This section includes stuff that are currently not significant to be reported separately – in the future when they get big enough to warrant it then they might 🙂

This includes stuff like the Group’s business and investments in online classifieds, their events and exhibitions (Sphere Exhibits) and SPH’s S$100 million New Media Fund that was set up in 2014. This New Media Fund focused on early stage investments specifically in technology startups with a strong regional focus. Some of their investments included Chope, Crodynews, Peatix and Smaato.

Did you know that SPH is an Associate in the following companies?

– MediaCorp Press Ltd: 40%
– MediaCorp TV Holdings: 20%
– MindChamps Preschool (Worldwide) Pte Ltd: 22%

 

If you are looking for more information, SPH has actually compiled a series of FAQ that can be found from their website titled “Introduction to Singapore Press Holdings”. These questions are far ranging and cover issues the likes of SPH’s dominance in Singapore’s media landscape all the way to the objectives and returns of the Treasury and Investment business!

KEY STATISTICS (FY2015)

Revenue: S$1.18  Billion
GPM: N/A
OPM: 33%
NPM (Shareholders): 27%
ROE (Shareholders): 9%
ROA: 6%

KEY OPPORTUNITIES

1. Consistently Strong Operating Cash Flow & Dividends

Even through the challenging media environment, SPH has consistently (at least the past 4Y) had Net Cash from Operating Activities north of S$400 million. This might differ slightly from SPH’s reported Statement of Cash Flow because Dividends paid were adjusted to the Financing Cash Flow Activities segment.

Seeing that SPH’s cash, ST & LT Investment add up to S$1.4 billion, SPH’s total borrowings of S$1.3 billion doesn’t look too extreme.

And for a business like SPH (in terms of traditional business cycle), it is inevitable that the discussion of dividends would come into play.

SPH IR Website
SPH IR Website
SPH FAQ
SPH FAQ

From their track record (at least over the past few years), their track record doesn’t look too shabby at all. With consistent payout as well as a payout of close to 100% of their recurring earnings, SPH seems to be willing to share their gains with shareholders. Additionally, post SPH-REIT’s listing, SPH declared and paid out a special dividend of S$291 million in FY2013.

 

2. SPH Media Fund & Other Online Forays

Understanding that the traditional media model is a tough environment to be in, SPH has ventured into new territories. Even traditional media is going online – with apps, you can assess Business Times, Straits Times, The New Paper Berita Harian and even Zaobao online as well!

Did you know SPH is an investor in Qoo10 as well!

Some names under SPH’s digital portfolio might surprise you:
– cleo.com.sg
– hardwarezone.com.sg
– mycarforum.com
– sgcarmart.com
– shareinvestor.com
– stomp.com.sg
– towkayzone.com.sg and many more!

SPH Media Funds also launched the SPH Plug & Play accelerator in 2015 in partnership with Silicon Valley based Plug & Play and Infocomm Investments (wholly owned subsidiary of Infocomm Development Authority (IDA) of Singapore). It as invested S$30k in 8x startups operating across media sectors ranging from advertising, e-commerce, marketplaces, mobile, news and content distribution. The 8x selected startups will be mentored by domain experts from the venture capital and media industries.

 

3. SPH REIT

SPH REIT AR 2015
SPH REIT AR 2015

SPH has a 70.18% deemed interest in SPH REIT (listed on SGX in 2013). SPH has an intention to buy and hold attractive infrastructure in Singapore with their property arm being a boost to the Group’s total returns.

As at June 2016, SPH REIT has 2x properties under their portfolio:
– Paragon: Premier luxury Shopping mall on Orchard Road valued at S$2.77 billion (2015) @ 100% Occupancy
– The Clementi Mall: Suburban Retail mall valued at S$0.5 billion (2015) @ 100% Occupancy

With 100% occupancy, SPH REIT seems to be doing rather decent. And why do we say that SPH REIT is an opportunity for SPH?

From SPH’s perspective, SPH REIT gives them the opportunity to monetise their assets – think Paragon and Clementi Mall.

Fast forward to today, SPH’s remaining retail property is the newly opened Seletar Mall (JV between SPH and United Engineers) with a value of S$0.5 billion (2015) @ 100% Occupancy when it opened in 2014 – This is a potential asset to be divested / injected into SPH REIT – In one move, SPH could not only monetise their asset, with a 70% stake in SPH REIT, they could still take part in The Seletar Mall through the payout by SPH REIT.

KEY RISKS

1. Challenging Outlook of The Traditional Media Business

Over the past 4Y, both revenue and operating income from SPH’s Media segment has been in a steady decline.

Media Segment:
– Revenue: S$1,031 million (FY2012) down to S$903 million (FY2015) – down 12%
– Operating Income: S$326 million (FY2012) down to S$239 million (FY2015) – down 27%

This was attributed to a decline in both revenue from advertisements as well as revenue from circulation. Even their magazine segments were not spared with the bulk of their goodwill impairments during FY2013 & FY2015 attributed to their magazine segment and might have been the driver steering SPH towards their traditionally non-core businesses to mitigate this decline.

Seems like the traditional media business is not having the best of times with statements like “lower contribution from its Media business was cushioned by higher property revenue“. Not that we are taking anything away from their foray into property, on the contrary; with the benefit of hindsight, we think that SPH going into property was a smart move!

 

2. More Dependent On Less Resilient Non-Core Business

With ~60% of SPH’s revenue from advertisements and with online players the likes of Facebook and Google coming into the playing field, SPH has to find other ways to make money.

Despite the drop from their Media segment, SPH’s Group operating results have been supported (last 4Y) by both their property as well as their investment operations. At the moment, their event & exhibitions segment, online classified and New Media Fund are not significant enough to be reported separately and are still lumped under “Others” as an operating segment. In FY2015, the “Others” segment made an operating loss of S$25 million.

With that said, the risk here might be that in place of a rather stable stream of cash flow serving SPH for the past decades, that stream is now slowing down and to substitute and grow, SPH has to depend on less resilient (Property and Investments are lumpy businesses) and less proven (Online digital) businesses.

 

3. Growth Concerns

With over 77% of SPH’s revenue still from their media business, and with most of it from traditional media avenues, many might see growth as a concern. Especially when it comes to a company with a market capitalization of over S$6 billion.

This might be why SPH outlined 4 growth thrusts (from their FAQ):
– Events & Exhibitions
– Magazines
– Online Classified
– Property

If you noticed, only magazines might have  fit under their traditional media operations.

SPECIAL MENTION

Did you know 1: SPH Data Services (in partnership with the Singapore Exchange and FTSE Ltd) licenses the use of the Straits Times Index (STI)?

Did you know 2: SPH has 2 types of shares, Ordinary & Management. The only difference that the Management shares have is that on any resolutions relating to the appointment or dismissal of a director or any member of the staff of the Company, the holders of the management shares shall be entitled either by poll or by show of hands to two hundred (200) votes for each management share held.

Now you know 🙂

THOUGHTS ON VALUATION (NOT A BUY OR SELL CALL!)

SPH REIT is priced at S$2.45 billion – 70% of SPH REIT = S$1.7 billion.

SPH is priced at S$6 billion.

If you follow our logic, the market appears to be pricing SPH’s business (less Paragon & Clementi Mall) alone at S$S$4.3 billion. Furthermore, if we go further down the line, SPH’s Media business & their remaining assets less Seletar Mall (US$0.5 billion) was valued by the market at somewhere around ~S$3.8 billion.

Currently, SPH as a whole trades at a P/E of 23.87x.

LISTED PEERS

1. mm2 Asia Ltd
2. Singtao News Corporation Ltd
3. Alibaba Pictures Group Ltd

INVESTOR RELATIONS

Investor Relation Material:
Annual Report
Investor Presentations

Email: sphir@sph.com.sg

TOP SHAREHOLDERS TOTAL INTEREST (29 July 2016 - From SGX)

1. BlackRock, Inc.: 1.86%
2. The Vanguard Group, Inc.: 1.85%
3. Vanguard STAR Funds – Vanguard Total International Stock ETF: 1.05%

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Cover Photo Credit: Pixabay
Other Photos: SPH Annual Reports & Presentations

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Disclosure: As at 29 July 2016, Value Invest Asia is not a shareholder of SPH Ltd.

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