SPH Reports Improved Earnings and a Strategic Review: 5 Things You Should Know

2021-04-05     thesmartinvestor
SPH Reports Improved Earnings and a Strategic Review: 5 Things You Should Know

Singapore Press Holdings Limited (SGX: T39), or SPH, long considered the bellwether of the media industry, recently reported its fiscal 2021 half-year earnings ended 28 February 2021 (1H FY21).

It was a mixed set of results.

As expected, the group reported a decline in its media segment.

Despite this, there were specks of good news among the flurry of negative numbers.

Total revenue dipped by 4.2% year on year to S$460.3 million for the period.

Operating profit, however, increased by 16.6% year on year to S$119.8 million, partly boosted by S$15 million from the government’s Jobs Support Scheme (JSS).

Net profit jumped by 26.1% year on year to S$97.8 million, helped by associates’ results and higher net income from investments.

Here are five highlights from SPH’s recent results.

1. Pre-tax loss for the media division

The media division continued its inexorable decline, with sales falling from S$253.8 million in 1H FY20 to S$193.1 million in 1H FY21.

Profit before tax for the segment plunged from S$10.6 million to S$3.1 million over the same period. If the JSS grant of S$12.8 million is excluded from the division, it would have incurred a pre-tax loss of S$9.7 million.

Print advertisement revenue declined by 29% year on year as COVID-19 accelerated the decline of print media, with both display and classified ads seeing year on year revenue declines of 28% and 30%, respectively.

The silver lining is that digital revenue has been growing, albeit at a slower pace. Digital circulation revenue now makes up 31.6% of total digital revenue, up from just 23% a year ago.

Digital copies have now exceeded print copies, making up 53% of total circulation, in a sign that digital is leading the way for the division.

2. Stable performance for the retail and commercial division

SPH’s retail and commercial division consists of its 66% stake in SPH REIT (SGX: SK6U) and its asset management arm.

Revenue for the division increased by 4.4% year on year to S$154.6 million despite the crisis, as a full six months’ worth of contributions were recognised for Westfield Marion, which was acquired in December 2019.

Tenant sales in both Paragon and Clementi Mall, SPH REIT’s Singapore retail assets, showed recovery with the easing of safe distancing measures.

The division also launched its new property Woodleigh Residences in February 2021. As of 22 March, 62% of total units have been sold at increasing per square foot prices.

As a result of the additional contribution from Westfield Marion and encouraging sales for its residential property, net profit before tax inched down just 1.4% year on year.

3. Strong performance from PBSA

This set of earnings is the first time that SPH has split out its purpose-built student accommodation (PBSA) assets.

Previously, this segment used to be lumped together under the “property” segment.

Revenue for this division rose by 24.2% year on year to S$35.3 million due to six months of contribution from the Student Castle portfolio that was acquired in December 2019.

However, the pandemic did have an impact on the PBSA division, leading to lower occupancies and delayed tenancy start dates as students deferred their studies in light of lockdowns.

Net profit before tax for the division stood at S$22.4 million, a figure that included S$9.4 million of rental guarantee received from the vendor of the PBSA’s greenfield assets.

4. Gains in aged care and treasury income

In addition to its PBSA, SPH has also been building up its aged care portfolio.

Its Orange Valley nursing home and Japan aged care assets had a carrying value of S$122 million and S$70 million, respectively, as of 28 February 2021.

This segment remained resilient despite the crisis and posted a small profit before tax of S$0.3 million for the half-year.

Its treasury portfolio also enjoyed significant marked-to-market gains from its stake in iFAST Corporation Limited (SGX: AIY) and Coupang Inc (NYSE: CPNG), a South Korean e-commerce company that just went public.

5. Strategic review and higher interim dividend

In light of the better results, SPH doubled its interim dividend from S$0.015 a year ago to S$0.03.

SPH also surprised the market by announcing a strategic review conducted to unlock long-term shareholder value.

Credit Suisse has been appointed as the group’s financial advisor.

Get Smart: Better things to come?

SPH’s media division will probably continue to suffer from long-term headwinds as the division suffers from lower advertising revenue.

However, the group is valiantly pivoting towards a more real estate-centred business model consisting of its stake in SPH REIT, PBSA and aged care assets.

These properties will contribute steady rental income for SPH and help to buffer against the deteriorating outlook for its media division.

Furthermore, the recently-announced strategic review may also help to realise more value for shareholders.

Investors have reasons to keep the faith as SPH slowly revamps itself to adapt to the new normal.

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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited.

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