SPH dividends to take a lashing as impairments slam Q3 profits

DPS could fall to 17 S cents.

Slammed with goodwill impairments in Q3, Singapore Press Holdings (SPH) may be on the verge of slashing dividends.

According to a report by CIMB, SPH typically pays out 90-100% of operating profit as dividends. CIMB estimates that with $28.4m making up 9% of its FY16 projected profits, dividends are in danger of getting cut.

In addition, SPH previously enjoyed reduced materials expenses as the newsprint charge-out price was on a downtrend. This appears to have stabilised, though, and thus removes an earnings buffer for the company.

CIMB argues that DPS could fall by 17 to 18 S cents in FY16 to FY18, translating to a 94-96% payout ratio.

Moreover, signs point to a worsening media business, with expectations of a faster rate of decline in newspaper and magazine advertisements.

“While SPH has been looked upon favourably for its yield, we think the risk of dividend cuts is real, especially with no signs of stabilisation in the core media business,” CIMB asserts.

On the flip side, CIMB shares that slashed dividends could be averted if SPH core business manages a recovery, or successfully ventures into new media.