Restructuring SPH's media business is timely, say analysts, but Sias flags concerns

SPH announced that it was restructuring its media business into a not-for-profit entity on May 6, 2021.
SPH announced that it was restructuring its media business into a not-for-profit entity on May 6, 2021.ST PHOTO: GAVIN FOO

SINGAPORE - The move to restructure Singapore Press Holdings' media business as a not-for-profit entity is timely, said several analysts, though the Securities Investors Association (Singapore) raised some questions about the proposal.

Sias president and chief executive David Gerald asked, for example, why the media business could not be profitable and queried the upfront capitalisation of the proposed new entity.

Other analysts noted that the new entity will have to tap new sources of funding.

DBS analyst Alfie Yeo said there has been a structural decline in SPH's media business, which has been loss-making since the financial year 2020.

"Restructuring this business away from their books would improve profitability, given the losses it has to take in if the media business were to be part of the group."

Assistant Professor of Finance Aurobindo Ghosh from the Singapore Management University's Lee Kong Chian School of Business said being a listed company entails significant pressure from shareholders for quarterly revenue and profit generation.

"Restructuring into a listed SPH and a separate not-for-profit entity SPH Media might help shelve such scrutiny," said Prof Ghosh, who added that different models such as The Guardian's voluntary contribution system can be considered as other avenues of funding.

Sias' Mr Gerald acknowledged that the media business has been declining for the past five years, with its operating revenue halved during this period.

However, he said that Thursday's (May 6) announcement came as a surprise to many, as SPH has been reviewing and diversifying its investments for several years, and has implemented strategic initiatives to produce more digital content.

Mr Gerald noted that other news media outlets have had continued success in an even more competitive and crowded space.

"Many shareholders and investors are therefore at a loss as to why the SPH media business would not be profitable, given the near monopoly that SPH has for its print," he said.

Pointing to SPH's upfront capitalisation of $110 million, he said: "Surely, SPH will have to answer the shareholders who may be confounded by this parting gift to SPH Media, especially since they view this segment as having value - or still revenue-generating and can turn profitable over time."

At a press conference earlier, SPH chairman Lee Boon Yang touched on the capitalisation of the new entity and said that shareholders should understand that "all the assets... of SPH, the group as it is today, came about from the media operations of past years".

Mr Gerald said: "Though not the most profitable, the media arm is nevertheless the major contributor to the group's operating revenue."

With the property segment driving the group's operating revenue and profits after the restructuring, the company will need to clarify its role in relation to SPH Reit, he said.

"Fundamentally, the outcome of this proposal will be determined by shareholders, who will vote for the resolution at the upcoming extraordinary general meeting."