What’s dragging SPH’s dismal advertising revenue down?

Advertisers are thinking twice before spending.

Media firms such as Singapore Press Holdings thrive on advertising earnings, and when advertisers are having second thoughts on investing on ads, it’s definitely a red flag for the company.

SPH saw its advertising revenue fall by 8.7% YoY, despite keeping its circulation rate flat.

According to a report by UOB Kay Hian, SPH management attributed the gloomy ad revenue to the reluctance of advertisers to spend.

UOB Kay Hian says among the reasons for this reluctance are weak property and auto sectors, poor capital market conditions leading to fewer IPO-related adverts, poor retail outlook due to rising purchases through e-commerce, and lower tourist arrivals and hence, lower spending on luxury goods.

Meanwhile, analysts from UOB Kay Hian say the press company should look away from its dismal advertising revenue and focus on cost control and new business initiatives.

“As the media business remains a mature business, we expect SPH to continue to rein in costs and intensify its search for new business initiatives,” UOB Kay Hian said.

“Material, production and distribution costs fell 11.7% in FY15. SPH reduced its cost base sharply primarily through cuts in its newsprint and material costs. Newsprint costs saw the largest reduction with a decline of 16.1% yoy, followed by other materials, production & distribution costs which fell 8.9%. Staff costs fell a meagre 0.8%, driven by reduced bonus costs,” they added.