BUY: OCBC Investment Research - Dec 05, 2008 (BT)

BackDec 05, 2008

Brokers' Take

BUY: OCBC Investment Research

Dec 05, 2008
The Business Times


RESILIENT in carnage: Singapore Press Holdings (SPH) has weathered the current financial storm in a better fashion than most of its STI peers. While the STI plunged 36.4 per cent in October to November, SPH demonstrated resilience by falling only 13.5 per cent, thus outperforming the STI by a credible 22.9 per cent.

Growth looking more elusive: With Singapore falling into the deeper recesses of economic difficulties, we are expecting SPH to suffer in tandem as advert and classified revenues fall while costs edge upwards as it has to push through its new media development strategy.

Lowering expectations: In view of the challenging year ahead, we have lowered our estimates for its core printing business by 4 per cent. While we understand that Paragon is a jewel in Orchard Road, we still lower our upward rental revisions for renewals to a similar level to FY08 to cater to the mounting difficulties faced by luxury goods retailers. We also anticipate a 10 per cent cut in valuation for Paragon in its next exercise in June 2009. The only foreseeable upside is SPH's higher recognition from its Sky@Eleven project for FY09.

Cash preservation mode: We specifically mentioned in our Oct 13 report that while SPH has stepped up its dividend/share to $0.27 for FY08, we feel that management sent a clear signal when it iterated that it does not have a dividend policy.

With our latest earnings revisions, our last estimate of $0.24/share is further cut to $0.215/share. Our reason for the dividend cut is not based on the buyer default rates of the Sky@Eleven project but more a function of free cash flow.

While SPH continues to recognise revenue via progressive construction stages, there is marginal real cash flow into the company.

We expect temporary occupation permit (TOP) in Q3 FY10 which implies that buyers have till then to obtain appropriate financing. Despite the cut, FY09 still gives a dividend yield of 6.1 per cent.

Maintain BUY but lower valuation. While we have reduced our fair value to $4.86 (previously $5.14) based on our sum-of-the- parts (SOTP) valuation, we expect SPH to continue its outperformance in this down market.