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SPH – The First Of Six Stocks For The Modern Homemaker
Hot Picks, Tradeable | 20 November 2013
By: Simeon Ang
Articles (125) Profile
By: Raymond Leung
Articles (142) Profile

In a previous article, we featured six companies for the modern homemaker and explained how we picked them. In this six part series of articles, we will feature in-depth analysis of each company.

For the first part of this series, we put the national press under scrutiny. I am sure many readers are familiar with Singapore Press Holdings (SPH). The company is involved in a wide range of businesses ranging from newspapers to properties.

Print Media – A Sunset Industry?
Prints of newspapers and magazines are the main businesses of SPH. Notably, SPH prints The Straits Times which is the national press; having been the main English newspaper in Singapore since 1845.

Other newspapers printed by the company include The Business Times, The New Paper and newspapers in Chinese, Malay and Tamil. SPH also owns a 40 percent stake in Mediacorp Press, the publisher of the Today newspaper.

In terms of magazines, SPH has a wide range of selection that caters to all readers (these magazines ranges from Her World, Torque and Home & Decor).

Based on its recent financial report, the main bulk of the profits come from advertisements in the prints (including Classified) rather than circulation.

Source: Operating Revenue Composition SPH FY2013 Annual Report

Bracing For The Digital Tide
Over the years, through developments and acquisitions, SPH has amassed a significant online presence. To keep current with trends, SPH started a network of online platforms collectively known as The AsiaOne Network.

The AsiaOne Network consists of the online versions of popular prints such as The Straits Times, The Business Times and Zao Bao (Chinese newspaper) as well as new media such as AsiaOne, STOMP, Razor TV and Omy.

To further increase their online presence, SPH acquired popular local online forum, Hardwarezone frequented by local netizens.

Property Investments – The Next SPH Frontier
SPH has always been involved in the local real estate scene and owns several properties including Paragon. In recent months, SPH spun off two of its retail properties (Paragon & Clementi Mall) into a REIT (SPH REIT).

Currently, SPH is the midst of building Seletar mall, its latest venture in the retail sector. The mall is expected to open in 2014 and has recently secured three anchor tenants. These are Shaw Theatres; NTUC Foodfare food court; and NTUC FairPrice’s upscale supermarket, FairPrice Finest.

An artist’s impression of Selatar Mall’s outer facade

SPH is also involved in the residential sector through its wholly-owned subsidiary, Times Development. The firm was responsible for the development of Sky@Eleven, an upmarket condominium that was sold out within 30 hours

The Makings Of A Conglomerate – Supporting Business Arms
SPH operates three radio channels which include Hot FM91.3 (English), Kiss92 (English) and UFM100.3 (Chinese). The radio stations are held through SPH UnionWorks, an 80-20 venture with NTUC Media. According to AC Nielsen’s radio survey, Kiss92 is the third most popular radio station in Singapore.

Aside from radio, SPH has involvement in television through a 20 percent stake in MediaCorp. The firm is the only operator for free-to-air channels in Singapore with Channel 5, 8, U and others.

Sphere Exhibits is SPH’s events management arm which organises large trade fairs, conferences and consumer events. The firm is responsible for various events in Singapore and the region such as Franchising and Licensing Asia.

SPH through its subsidiary, SPH MediaBox Office controls various billboards in Singapore. These billboards are made of LED screens and are located in various strategic locations including Orchard Road and Raffles Place.

SPH operates newsstands around Singapore which sells newspapers, magazines, drinks and snacks. It is commonly called Buzz Pod and is held under SPH’s wholly-owned subsidiary, SPH Buzz.

The group is also involved in building Singapore’s infrastructure through a 25 percent stake in OpenNet, a joint venture between SPH, Singapore Telecommunications, Axia NetMedia and SP Telecommunications. OpenNet is the sole-contractor for laying the fibre optics grid across Singapore.

The Actual Numbers – SPH Looks Beyond Print
Sales figures in the recent years have been slipping mainly due to the falling sales of print media. Comparing revenue of FY13 against FY09, the figure fell by slightly less than 5 percent.

To counter the falling demand for prints, SPH has pushed out digital versions for major newspapers. Based on the recent financial results released by SPH, sales for digital copies of Straits Times have not only managed to help the paper recover lost ground but grew its subscription base.

Source: SPH, FY2013 Financial Report (daily print & digital circulation)

Looking at SPH’s net income, we can see that there were quite large fluctuations in historical figures in particular during FY09, FY10 and FY13. Using the pattern of its sales against net income, it can be seen that the fluctuation was not due to sales of print media.

The jump in net income over these three years was contributed by the return of capital in property investments (In FY09 & FY10, revenue recognition from Sky@Eleven & in FY13, spinoff of the SPH REIT).

Source: FactSet, SPH Income Statement from FY2009 (Audited) to FY2013 (Unaudited)

The key financial figures for SPH are not looking so well. Gross margin, operating margin and return on equity have been slipping for the past five financial years. However, net margin performed better likely due to contribution from its property segment.

Source: FactSet, SPH Margins From FY2009 (Audited) to FY2013 (Unaudited)

A Key Homemaker Draw – Dividends!
Dividend for SPH has been growing steadily for the past five years and reached a new high this year. Looking at FY09 and FY10, the total dividend given out to investors amounted to $0.25 and $0.27. Both dividends included a special dividend of $0.09 and $0.10 respectively.

However, the dividends for the next two years were maintained at $0.24 despite the absence of a special dividend.
Source: SPH, FY2013 Financial Report (Historic Dividend)

Although there is an absence of a stated dividend policy, SPH does boast a record of consistently paying out a high proportion of its recurring earnings as dividends. Looking at the graph below, SPH appears to have kept to its dividend payouts at above 80 percent over the past five years.

Source: SPH, FY13 Financial Report (Dividend payout policy)

Analysts’ Take – Largely Stable Prognosis

Source: FactSet Research Systems, chart on analysts’ consensus on the stock price of SPH

As at November 2013, we can see that analysts generally view SPH as a stable counter, with about 64 percent of all ratings in the “Hold” territory.

This is perhaps largely due to concerns of SPH’s print media business but also a tip-of-the-hat to SPH’s relatively generous dividend payout policy.

No Resting On Laurels – Striving For Further Growth!
Circulation of SPH’s print media, its main business, has not been doing well in recent years. Readers are increasingly turning their sources for reading online. To keep up with the trend, SPH began to digitise their newspapers and launched mobile apps to increase convenience for readers.

Their efforts paid off as subscriptions for the digital circulations began to take off. In the upcoming quarters, it may be interesting to keep check on SPH’s operational cost as the digitised versions will incur less cost (no printing).

After the spinoff of Paragon and Clementi Mall into SPH REIT, SPH gave out a special dividend of $0.18 to investors. The remaining of the proceeds from the sale of properties was retained by SPH.

During the announcement of results for FY13, the management announced the establishment of a $100 million new media fund using proceed from the REIT. The fund will be used to extend SPH’s reach in the new media sector as sales for prints continue to decrease.

The company is expected to increase its activity in the retail sector following the launch of SPH REIT. It will be an effective platform for SPH to recycle its capital while remaining invested in the properties.

Market watchers expect SPH to sell the mall to its REIT and give out a special dividend to its shareholders.

That’s All Sweet But What Can You Do?
Our in-house technical specialist feels that SPH’s chart does represent some noteworthy points in which investors might want to take note of.

Medium term technical chart of SPH

Since crossing the slower 50 days moving average (MA) in early October, the faster 14 days MA has been trending further up. Despite a pullback in the RSI, from overbought to neutral, share price has sustained well between $4.20 and $4.30.

W%R is nearing the overbought situation but has not entered the zone. Over the 4 months Fibonacci, retracement has stopped at the 50% level and is currently trading within the 38.2% level and 50% level.

Look for the share price to break $4.30 and $4.45 (previous price with high volume in May-13). If the break has high volume and is supported by $4.37 (Fibonacci retracement 61.8% level), the uptrend should continue.

Near-term support would be $4.09 where the price traded at before its latest surge up. Watch out for RSI and W%R moving into oversold zones and crossing of MAs. If the price acts as a good support with RSI and W%R staying in neutral territory while MAs does not cross, it may be just a minor pullback with further upside.

So, if you fit the bill of a modern homemaker, or if you find that the investment objectives of a modern homemaker are not different from you, perhaps, you might want to cast your gaze on this counter.

Besides, in all extreme likelihood, we will not see SPH disappearing from the face of the earth anytime soon. Right?

This article was made possible by additional contributions from Shane Goh.

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This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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