Investment Analysis for Singapore Press Holdings

Tables of Contents

Executive Summary

1. Singapore Press Holdings (SPH) Analysis

1.1 Overview

1.2 History of Singapore Press Holdings

1.3 Financial Performance

1.4 Macro/Micro Environment for Singapore Press Holdings

1.5 DuPont Analysis

1. Valuation Analysis

2.1 Capital Asset Pricing Model

2.2 Dividend Discount Model (DDM)

2.3 Free Cash Flow to Equity Model (FCFE)

2.4 Price to Earnings Ratio Model (P/E)

2.5 Price/Book Value Ratio Model (P/B)

1. Evaluation

1. References

1. Appendix

Executive Summary

Singapore Press Holdings is one of the leading media companies in Asia. In Singapore, it virtually has a monopoly in the media market. Listed on the Singapore Exchange, the Singapore Press Holdings shares are one of the most commonly traded stocks on a day-to-day basis, and it is being represented in the Straits Times Index, which tracks the top 30 companies performance that are in Singapore

Throughout the years, Singapore Press Holdings have continuously developed and expanded its operations. Not just simply in the media industry, SPH has businesses in Real Estate and Events Management. Their real estate arm, Singapore Press Holding Real Estate Investment Trust, also known as SPH REIT, is responsible for some of the biggest retail projects in Singapore. These projects includes the Paragon, the Clementi Mall and the Seletar Mall.

In our efforts to determine a realistic intrinsic share price of Singapore Press Holdings, we have used the four valuations models – Dividend Discount Model (DDM), Free Cash Flow to Equity Model (FCFE), Price to Earnings Ratio Model (P/E) and Price/Book Value Ratio Model (P/B).

The Capital Asset Model Pricing, also known as CAPM, were used to help determine on what is the required rate of return of SPH’s shares. Beta and risk-free rates were derived from historical data of Singapore Press Holdings, the Straits Times Index and the Singapore Government Securities. The market return was forecasted by on the historic rate of return of the Straits Time Index, which is essentially the representation of the market of Singapore Press Holdings.

Through the use of the four valuation models, we have determined varying level of prices as our intrinsic value of Singapore Press Holdings share. After further analysis, we have weighted the pros and cons of each model, paying attention on the reasons for the varying prices as well as the assumptions used, and assessed the suitability of it in Singapore Press Holdings context. The Price to Earnings Ratio Model (P/E) was ultimately selected as our valuation model that closest represents the true intrinsic value of the Singapore Press Holding shares, whereby the shares are deemed to be overvalued and trading at a premium.

1. Company Analysis

1.1 Overview

Singapore Press Holdings (SPH) Limited is a media organization in Singapore. As one of Asia’s leading company in the media industry, their main media products and services includes the publication and distribution of newspaper, magazines and books in print and multimedia platforms such as the Internet and radio. On a day to day basis in Singapore, SPH averages about a collectively 2.8 million individual readers through one of their many news publication, either in printing of newspapers such as The Straits Times, The Business Times and The New Paper, or on digital platforms like AsiaOne, an information and news website, and SPH Razor, a free webcast service that offers on-demand video clips. In today’s context, SPH quintessentially has an unrivalled position in the media market of Singapore (Reuters 2016; Singapore Press Holdings 2016a).

Aside from the Media, SPH also operates in other segments such as Properties (SPH REIT), Online Classifieds (ST701) and Events Management. Their real estate investment trust, SPH REIT Management Pte Ltd, invests in a portfolio of income-producing real estate which are primarily used for retail purposes. Some of its retail development projects in Singapore includes Paragon and The Clementi Mall, which SPH REIT have a 99-year leasehold interest on, and both properties are valued at S$3.1 billion with an aggregate net lettable area of 898,779 square feet (Reuters 2016; Singapore Press Holdings 2016a).

1.2 History

Singapore Press Holdings (SPH) Limited was incorporated on 4th August 1984. It was formed primarily to fulfil the merger of four media companies -- Singapore News and Publications Limited, The Straits Time Press (1975) Limited, Times Publishing Berhad and Singapore Newspaper Services Pte Ltd -- to consolidate as one media group which will help to reduce cost as a result of the competition and duplication of resources in the Singapore media market (National Library Board 2016).

In 2000, SPH announced the setup of a new wholly-owned subsidiary company, SPH MediaWorks Ltd, as part of the group’s effort to venture into the broadcasting industry. With a paid up capital of $50 million, SPH MediaWorks aims to invest and build up their Group’s business in television and broadband media, while also to create new business opportunities in the existing technologies such as internet as well as in new technologies like digital broadcasting (Singapore Press Holdings 2013a).

In 2013, SPH launched an S$504 million Initial Public Offering (IPO) of SPH REIT, a total of 308,884,000 units -- an international placement of 224,902,000 units to institutional investors (the “Placement Tranche’’) and the rest offered to the public in Singapore. Due to the reported interest received from the investors under the Placement Tranche, which amounted to about 42 times the number of offered units, the units were being priced at S$0.90 per unit, essentially at the higher end of the spectrum for the offering price range. This high offering price is expected to translate into a high distribution yields of 5.58% and 5.59% for the forecast period second half of FY2013 and projection FY2014 respectively (Singapore Press Holdings 2000).

1.3 Financial Performance

1.3.1 Decrease in Revenue due to difficult global financial climate and digital age transition

Since 2012, challenging economic climate, unfavourable global outlook and with global media consumption trend moving towards digital publications, Singapore Press Holding (SPH) Ltd.’s total revenue dipped from S$1.292 billion dollars in 2012 to S$1.231 billion dollars in 2015. Advertisements and circulation which is the core media business of SPH declined in recent years with the growing global media consumption trend towards digital publications hence tradition advertisements and circulation via newspapers, magazines and radios decline affecting revenue.

SPH hence move its focus into investing and developing new media products, a shift from traditional media business. In 2013, S$100 million new media fund was established to support the company to lead in multi-media segment in Asia. With the transition into new media, revenue was seen to be slow in the recent years with the organization restructure.

Table 1.3.1.1: SPH Total Revenue

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1.3.2        Decreasing Operating Expenses

To invest in digital media while sustaining traditional newspaper business, it is inevitable to see an increase in operating cost. In most organization restructuring of its business focus, the transition period where investments and development is heavily focused is the period where operating expenses spiked. For SPH, the period is from 2011 to 2013, where the group started to move towards new media and noticeably in 2013, S$100 million new media fund was established. Among the transition of its core business towards digital media and sustaining its core traditional business, SPH also pursued other growth business such as property and exhibition.

In 2012, Clementi mall being fully operational attributes to premises cost and higher overall utilities costs. Acquisition of ACP Magazines Pte Ltd results in staff cost due to salary increment and increased headcounts.  In 2013, operating expenses rose mainly due to non-recurring charges relating to impairment of an overseas magazine subsidiary, impairment loss on proposed divestment of an associate and an increase in cost of S$8.0 million in tandem with a step-up in business promotion activities particularly for the online businesses. These explains the increasing operating expenses between 2011 to 2013.

However, from 2013 onwards SPH saw a decrease operating expense to S$851 million in 2015 which is even lower than that of S$860,786 in 2011. The subsequent of decreasing operating expenses from 2013 to 2015 is due to lower staff cost attributed by lower variable bonuses, lower impairment charges and business promotion costs. Materials, production and distribution costs saw a steady reduction from 2013 to 2015 in line with lower revenue. Newsprint cost being the main reason in the steady reduction which fell S$12.2 million (12.2%) in 2013, S$15.5 million (13.3%) in 2014 and S$23.3 million (11.7%) in 2015.