BUY: Kim Eng Research - Sep 18, 2007 (BT)

BackSep 18, 2007

Brokers' Take

BUY: Kim Eng Research

Sep 18, 2007
The Business Times

Singapore Press Holdings
Sept 17 close: $4.38

DIVIDEND play at a steal. SPH makes up for its low organic growth with its high cash flow generation and its track record of generous dividends. Further forays into property development could also produce more development profits for distribution as dividends. We thus reiterate our target price of $5.39 (implied FY08 dividend yield of 5.5 per cent).

Recent advertising revenue growth is unsustainable. SPH will be releasing its FY07 results in early-mid October. To recap, SPH delivered a sterling set of results in 3QFY07; newspaper advertising revenue grew more than 10 per cent year-on-year as Singapore's GDP grew 8.6 per cent. With display and classified advertisement revenues at their highest levels since the start of FY05, it is tempting to think that an era of high GDP growth would propel SPH's growth.

Weakening newsprint prices not catalyst for re-rating: In its Q3FY07 results announcement, SPH guided for newsprint prices to remain soft in the near term. This comes after four years of newsprint price increases from US$403/tonne in FY03 to US$581/tonne in FY06.

However, we think that even if newsprint prices decline, it will not significantly boost the operating margin of the Newspaper & Magazine segment. SPH's greatest cost component remains its staff costs and wages in Singapore are trending up.

Low organic growth impeding share price advancement: We estimate SPH's organic growth (excluding development profit from Sky@eleven) to be in the low-to-mid single digit range from FY08-FY10. We have assumed:

Print advertising revenue to increase 6 per cent per annum, pegged to Singapore's private consumption expenditure growth in 2Q07.

Rental income from Paragon to increase by 10 per cent per annum.

'Others' segment comprising outdoor advertising and Internet media to remain in a loss-incurring gestation period. We think that it is this unexciting organic growth rate that is impeding SPH's share price advancement.

More time is needed for new initiatives to bear fruit: Though SPH has been actively pursuing new growth initiatives in recent years in outdoor advertising and Internet media, these investments are small. Internet media, especially, will have to gain acceptance with the greater public. Currently, we remain unexcited about these new initiatives.