SINGAPORE (Sept 21): OCBC Investment Research is upgrading its call on Singapore Press Holdings (SPH) to “buy” from “hold” previously on valuation grounds, with an unchanged fair value estimate of $3.25.
In a Thursday report, analyst Eli Lee notes that the counter has fallen 15.4% to its last closing price of $2.63 on Wednesday since the release of its 3Q17 results, cumulating in a 34.3% decline since July 15.
This translates to what Lee calls a “remarkable underperformance” of 47.3% versus the Straits Times Index’s (STI) appreciation of 13% over the same period.
“While residual uncertainties continue to hang over the group’s core media business, we believe that the price correction is likely overdone at this point. We note that the 45.2% y-o-y decline in the group’s last reported 3QFY17 PATMI was primarily due to a sizeable one-time impairment ($37.8 million) related to the magazine business, without which the group’s recurring earnings would have declined only 19.2% y-o-y,” says the analyst.
See: SPH earnings fall 45% to $28.9 mil in 3Q
In Lee’s view, SPH’s management team has been actively sought to implement cost-side controls with some success, which is evident from the group’s y-o-y total costs decline of 6.7% over 3Q excluding the impairment charge, in spite of inflationary pressures.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
He also believes the group’s recent acquisition of Orange Valley Healthcare represents significant efforts made to diversify SPH’s earnings, while its tender win for a mixed site at Bidadari as well as strong contributions from the property segment also bode well for the group.
“Given that SPH completed the sale of 701Search on 30 June 2017, we expect the group to recognise a profit of about $150 million from the divestment in the next quarter’s results to be reported in mid Oct 2017,” states Lee.
As at 10.59am, shares in SPH are trading 4 cents higher at $2.67.
