1. Long-Term Challenge With Media Division

The first thing that comes to mind when we hear SPH is the newspaper right.

SPH owns The Strait Times, Business Times, and many other media properties.

And media normally makes money through ads.

SPH media division revenue is now less than half of what it used to be in FY 2014.

It dropped from S$963.4 million to S$445.2 million in FY 2020.

“All our major business segments were severely disrupted by Covid-19. Our Media business is badly affected by the collapse in advertising,” says CEO Ng Yat Chung.

This is expected.

The newspaper business model has been attacked and disrupted for many years now.

The newspaper business is impacted by alternatives on both the reader side as well as from the client’s side.

With the internet, it is easier for readers to get news without sticking to one particular publication.

The clients paying for newspaper ads now have better alternatives with Facebook ad, which is cheaper and more targeted.

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2. Digital Revenue is Growing

Digitalization is no longer a choice, it is a necessity.

SPH’s digital revenue grew by 11.8% year on year. In FY 2020, it is S$118.3 million.

Although pretty decent, I do not think that the growth is good enough to justify any of its other division’s decline.

At least not yet.

3. Dividend Plunged From 12 cents to 2.5 cents

I think that plenty of SPH investors invest in SPH for their dividends.

But those that invested in SPH for their dividends will be disappointed with dividends plunging from 12 cents last year to 2.5 cents this year.

I have shared before in my webinar that if a company does not have a business model that supports sustainable and growing earnings, the dividends will likely not be sustainable.

And it is a dilemma for SPH too because they will need to retain more of their earnings if they want to invest for future growth.

And if they retain more earnings, they will have even less to give out as dividends in the future.

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4. SPH Property Business, A Bright Spark?

I am not sure why I have been seeing companies to also a property division when their core business is not doing so well.

Think Keppel Corporation and SPH.

SPH property business revenue in FY 2020 is S$327.2 million.

It is a pretty decent size out of the total S$865.7 million of revenue they have in FY 2020.

Their property business revenue grew 10.3% year on year as compared to FY 2019 – in comparison, the media division revenue dropped 22.8% year on year.

But I am not sure that the property business will be able to allow SPH to be a growth company or even recover the revenue lost in the media segment of the business.

5. Sadly, It Will Likely Get Worst

It is noted that the group still makes an operating profit of S$110.2 million in FY 2020 even considering the Covid-19 situation.

However, their revenue has been declining for a couple of years due to the structural tailwind that they are facing especially in their media division.

Their total debt has also increased to S$3.41 billion as of 30 August 2020. Their net debt position now is at around S$2.54 billion.

One thing that is for sure is that I think their media ad earnings will continue to decline further with more businesses migrating their ad spend from traditional to digital.

And time is running out if their debt continues to increase.

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In Conclusion

I think that SPH is an interesting company with some interesting assets like the Straits Times, The BT, and many others.

But obviously what they have been doing is not working so far as explained by the decline in revenue from 2014 to 2020.

And it could be hard for them to succeed moving forward without radically transforming the whole business.

And my view is that in due time, their dividend will likely be cut totally if earnings continue to decline.

All in all, it’s a bad year for SPH and it will likely stay bad in the short and long-term due to the lack of differentiation in their business model.

Unless they start to do something about it.

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