BUY: ING Financial Markets, Kim Eng Research, Daiwa Institute of Research - Jan 14, 2004 (BT)

BackJan 14, 2004

Brokers' Take

BUY: ING Financial Markets, Kim Eng Research, Daiwa Institute of Research

Jan 14, 2004
The Business Times


SPH, Jan 13 closing : $19.50

ING Financial Markets, Jan 13

SINGAPORE Press Holdings announced a Q1 FY04 net profit of $83.8 million, up 1.2 per cent year on year and is equal to 26.4 per cent of our full-year forecast of $317 million, which remains unchanged. Lower associate income from the sale of M1 was partly offset by higher revenue from the restructured Paragon. The group's core newspaper and magazine business remained relatively soft in the Q1 (September-November) period, declining 2.9 per cent. Against this backdrop, SPH continues to focus on cost control, with staff costs down 4.2 per cent. Newsprint prices are expected to rise in 2004. However, as these account for only 17 per cent of total costs, we estimate the net impact should be small and manageable. We expect the group to post an exceptional gain of $110.4 million only in Q3, as the Times House sale to Marco Polo Developments is not expected to be completed until April. The notional dividend payout is likely to stay firm given the backdrop of non-core asset sales. We estimate a dividend yield of 5.2 per cent ($1 gross dividend per share). As SPH is leveraging on an economic recovery, we maintain our BUY rating and target price of $25, based on RNAV (revalued net asset value). -

Kim Eng Research, Jan 13

RESULTS were in line with our expectations but ahead of the consensus estimate. Net profit increased 1.2 per cent year on year to $83.8 million, accounting for 26 per cent of our full-year forecast of $320 million. Maintain BUY. The market could start to focus on the prospects of a recovery in advertising revenue from Q2. Besides, SPH has been a laggard in the current rally. While the Straits Times Index has surged more than 10 per cent from its low in November 2003, SPH has edged up only 6 per cent. SPH now trades at an FY04 implied core earnings multiple of 18.4 times, which is on par with the market. Going by the historical trend, SPH should trade at a 10 per cent premium to the market. Hence we expect room for further price appreciation.

Daiwa Institute of Research, Jan 13

WE have revised our FY04 recurring earnings estimate upwards by 4 per cent to $275.1 million, due largely to lower-than-expected increases in newsprint cost. We also expect the company to maintain a generous dividend payout ratio in FY04, especially with the proceeds from the divestment of non-core assets and expected strong cash flow from its core operations. We believe the market has largely discounted the weak Q1 FY04 performance and investors are looking forward to better results in the coming quarters. Our fair-value estimate for SPH is $22.40 a share, based on the break-up value of the group. We believe there is upside potential for this stock, moving in tandem with the positive sentiment of the overall market. An FY04 price-earnings ratio of 18.6 times and a prospective yield of 6.2 per cent are also attractive in our opinion.