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Changing Consumer Habits A Bane To SPH
SPH second quarter net profit rose 7.5 percent due to a one-off gain from sale of its stake in a regional online classified business.
SPH is slowly losing their core revenue due to changing consumer habits
RSI divergence signals a possible downward price movement once 20 EMA crosses below 50 EMA.
Company Profile and Business Operations
Singapore Press Holdings Limited is a media organization. The Company operates in three segments: Newspaper and Magazine, Treasury and Investment, and Property.
The Newspaper and Magazine segment is involved in the publishing, printing and distributing of newspapers and magazines.
The Treasury and Investment segment manages the investment activities of the Company
The Property segment holds, manages and develops properties of the Company.
Property Segment
SPH listed its property portfolio as SPH REIT on the Singapore Exchange last year. SPH REIT performed relatively better than most of its peers. It recently reached a share price of $1.00 (11 percent premium of its IPO price). OUE Commercial Trust, which listed during the same period, didn’t fare as well.
Q2 Results
Second-quarter net profit rose 7.5 percent as it booked a gain from partially selling its stake in the regional online classified business. However, group operating revenue fell 1.2 percent. As an investor, you would want to discount this one-off sale as it is not a lasting source of income for SPH in the long run.
SPH Business And Products
SPH is currently facing a problem that most print media are facing, i.e. consumer content consumption patterns are slowly moving to mobile applications (apps) when reading news or for entertainment. Start-ups like Flipboard provide a single platform for users to browse through news from different news agencies. SPH needs to react to the changing habits of its consumers to retain its source of core revenue.
However, this is not something that can be done in a month or so. It requires time and manpower. Although SPH has the resources, it may not be easy for SPH to catch up with current news reading apps that already have a large base of frequent users. Although SPH does have its fair share of online sites, they are different in nature from platforms that allow users to browse various news sources from a single site.
Source: FT.com
As shown in their five year financial summary, there are hints of decreasing revenue, especially after SPH listed its SPH REIT.
Diverging Chart Movements
SPH’s 20 Exponential Moving Average (EMA) is above 50 EMA, which signals an uptrend movement since beginning of March 2014. However, if we look at the RSI, we can see that there is a downward sloping pressure on SPH share prices. Even though RSI is falling, SPH share prices continues to rise.
In my opinion, this divergence displays an underlying downward selling pressure on SPH. The fall is likely to begin after 20 EMA crosses below 50 EMA.
Bearish For The Intermediate Term
After considering the existential threats to SPH’s core business operations, I am inclined to opt for a bearish call on SPH for the intermediate term. This is further supported by the indicators pointing to a possible downward movement in share prices once 20 EMA crosses below 50 EMA.
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