BUY: DBS Group Research (BT)

BackJan 14, 2010

Singapore Press Holdings
Jan 14 close: $3.82

SINGAPORE Press Holdings' (SPH) revenue in Q1 FY2010 (the three months to Nov 30, 2009) grew by 4 per cent y-o-y to $354 million, driven by recognition of Sky@Eleven, but offset by a 2.5 per cent drop from its Newspaper & Magazine operations. Ebit grew to $164.7 million (up 24 per cent y-o-y, or $31.8 million) contributed largely by property development's Ebit at $50.3 million (up 38 per cent y-o-y, or $14 million) and lower newsprint charge-out costs at $22.1 million (down 38 per cent y-o-y, or $13.6 million). Net profit surged 98 per cent y-o-y to $144.7 million, largely due to the absence of a $33.7 million investment loss recorded in Q1 FY2009, versus a $10.2 million gain in Q1 FY2010.

Although total ad revenue dipped 3.1 per cent y-o-y to $182.4 million in Q1 FY2010, this was an improvement over Q4 FY2009's 18.4 per cent y-o-y drop.

Display ads growth turned positive at 2 per cent y-o-y, not seen since Q4 FY2008. We are now assuming a stronger growth for ad revenues (8 per cent, instead of 4 per cent previously) on expectations that ad revenues will be stronger sequentially due to the opening of both integrated resorts, and a pick-up in property launches and the employment market. As such, we revised our forecasts up by 3-6 per cent.

While we feel that SPH has overpaid for Clementi Mall, the market has already priced that in after a knee-jerk reaction in its share price. A write-down in future is possible but impact should be minimal at about six cents per share, based on our estimates.

Upgrade to 'buy', we revised up our TP to $4.33 (from $4), factoring in our higher earnings assumption and as we adjust our sum-of-parts valuation to factor in a potential write-down of Clementi Mall ($95.9 million or six cents/share) instead of a 5 per cent discount. The dividend yield is at an attractive 6.8 per cent (based on our dividend per share forecast of 25 cents), which should provide a good support to the share price.