SPH – JPMorgan

Core publishing continues to show improvement

• FY07 results in line with our expectations: FY07 net profit rose 18.1% Y/Y due to strong revenue growth of 13.7% Y/Y, helped by maiden profit of S$47.8 million from the sale of Sky@eleven condominium and strong investment income gain, which was up 79% Y/Y to S$146.2 million (sale of investments and profits from capital reduction exercises by Starhub and M1). FY07 EPS of S$0.32 was roughly in line with our estimate of S$0.31 and above
consensus of S$0.29 by 9.1%.

• Newspaper ad revenue continues to post strong growth figures: SPH saw strong revenue and earnings growth for its core newspaper and magazine division: revenue grew 5.9% Y/Y and PBT grew 8.2% Y/Y. Display and classified ad revenue continues to post strong growth in the 4Q, up 8.4% and 13.8% respectively. Overall, display and classified ad revenue grew by 5.6% and 8.5%, respectively, in FY07.

• Positive catalysts for SPH in the next few quarters: We expect positive catalysts from: (1) stronger-than-expected ad revenue growth in the coming quarters; (2) maiden earnings recognition from its property development project—Sky@eleven; and (3) higher revaluation and rental revisions at Paragon.

• Valuation and risks: We maintain our Overweight rating on SPH with our June-08 price target of S$5.50, based on sum-of-the-parts valuation. The key risks to our price target are: (1) ad revenue growth; (2) increase in global newsprint prices; (3) rising cost of wages and operating costs for the company.