OUTPERFORM: CIMB-GK Research - Oct 16, 2007 (BT)

BackOct 16, 2007

Brokers' Take


Oct 16, 2007
The Business Times

Singapore Press Holdings
Oct 15 close: $4.52
CIMB-GK Research, Oct 15

THIS was a strong set of results, with FY2007 $506 million core earnings (up 40 per cent year-on-year) beating our estimate by 20 per cent and that of the consensus by 9 per cent. Key reasons for the surprise were higher investment income (up 79 per cent year-on-year) and a lower tax rate due to adjustments for over-provision. A final DPS of 19 cents was announced, bringing full-year DPS to 26 cents, ahead of our expected 25 cents.

FY2007 operating revenue jumped 13.6 per cent year-on-year to $1.2 billion. Core print media revenue grew 5.8 per cent year-on-year to $959 million in FY2007, underpinned by strength in classifieds ($277 million, up 9 per cent year-on-year) and display ($395 million, up 6 per cent year-on-year). Printed ad revenue growth accelerated in H2 2007 (up 11 per cent year-on-year vs H1 2007's 3.5 per cent year-on-year increase), on the back of a robust domestic economy. Property revenue grew 80 per cent year-on-year with the help of Sky@eleven's maiden contribution of $71.3 million (slightly higher than our estimated 10 per cent revenue recognition for FY 2007) and Paragon's $7.8 million revenue growth.

Operating margins climbed to 37 per cent (up 200 basis points year-on-year) on higher contributions from the property segment. Core media operating margins remained stable at 35 per cent, as strong topline growth and flattish newsprint costs offset a 12.5 per cent year-on-year rise in staff costs. Newsprint cost benefited from a weaker US dollar and lower newsprint prices. Staff costs were higher on headcount growth and higher variable bonuses.

Raising earnings estimates on positive outlook: Print adex growth is firmly picking up on the back of Singapore's economic growth. SPH is also benefiting from Sky@eleven contributions and robust rental growth at Paragon. This prompts us to raise our earnings estimates by 9-19 per cent for FY2008-2009. We also introduce FY2010 estimates. DPS estimates have been raised by 3-14 per cent for FY2008-2009.

Reiterate 'outperform', although with a reduced target price of $5.10 ($5.22 previously): Our sum-of-the-parts valuation has been reduced slightly as we switch our valuation methodology for core media operations to DCF (WACC 7.5 per cent, terminal growth one per cent) from 16 times calendar year 2007 PE. We believe that as a laggard consumer stock profiting from Singapore's economic upcycle, SPH is poised to deliver strong earnings growth over the next few quarters. We like it as the best-in-class proxy for adex growth in Singapore and yields of 6-8 per cent for FY2008-2010.