CGS-CIMB upgraded Singapore Press Holdings to Add from Hold, saying the media segment’s weakness has been priced in and the share may re-rate ahead.
“We think its weak media outlook is largely priced in, with near-term earnings recovery from property sales and diversification into overseas asset management,” it said in a note on Wednesday.
It raised its earnings per share forecasts for fiscal 2019-20 by 5.6-6.2 percent, mainly on higher sales contributions from the upcoming Woodleigh Residences property launch and investment income from property asset management. The target price was increased to S$2.85 from S$2.49.
CGS-CIMB also noted that SPH has the ability to “optimize its balance sheet,” which has S$653 million in liquid assets as of the end of the fiscal second quarter, and seek higher returns.
“It is on the lookout for asset management opportunities in overseas property markets, with healthcare (retirement homes) and education (student housing) as its primary focus,” the note said. It forecast SPH would secure a project size of S$500 million by fiscal 2019, with average 8 percent cash yield to add S$10.4 million to S$17.3 million in profit over fiscal 2019-20.
CGS-CIMB also pointed to a possible stabilization in the media segment, as well, noting that the fiscal second quarter media topline fell 7.4 percent on-year, slower than double-digit declines in previous quarters.
“We believe the deteriorating media operations are showing signs of moderating, and the pessimistic outlook has been priced in,” it said. “As its focus shifts towards digital-first and roll-out of new initiatives takes form, these could help increase digital contribution to overall media revenue and arrest its earnings decline in the medium term.”
SPH’s fiscal third quarter results are due after the market close on 11 July; CGS-CIMB forecast fiscal third quarter core profit after tax and minority interests of S$52 million to S$57 million, down 14-22 percent on-year on a single-digit decline in media revenue and weaker margins. But it added that it expected to see on-quarter improvement as the second quarter is traditionally weaker.
The stock was up 2.7 percent at S$2.66 at 11:58 A.M. SGT on Thursday.