SPH – UOBKH

Great tidings of Christmas indulgence

Bumper page-count suggests strong advertising revenue growth. Last Saturday issue of The Straits Times totalled 304 pages. Compared to the corresponding Saturday of Dec 06 (totalling 270 pages), this suggests a bumper advertising revenue (AR) growth of 12% yoy, driven by a strong display advertising growth of 11% yoy. We understand from SPH, advertisers have stepped up their festive season’s advertising expenditure well ahead of Christmas in anticipation of a much stronger consumer spending this year compared to last year. With a robust domestic economy, full employment, large year-end bonuses, a buoyant consumer confidence and higher tourist arrivals, retailers are looking forward to strong sales in the upcoming festive season.

Sustained strong AR growth into FY08. Our page-counts of The Straits Times, the bellwether of Singapore’s advertising expenditure, for Oct 07 and Nov 07 are indicating robust AR growth of 6% and 7% respectively. Separately, ACNielsen data is suggesting a healthy AR growth of 5% in Oct 07. SPH’s AR moved out of the doldrums in 2HFY07. The company’s overall AR growth improved from 2.1% in 1QFY07 to 3.9%, 10.2% and 10.7% in 2QFY07, 3QFY07 and 4QFY07, respectively. Display AR growth improved from a contraction of 1.3% in 1QFY07 to 4.3%, 11.7% and 9.4% for 2QFY07, 3QFY07 and 4QFY07 respectively while classified AR growth fluctuated from 7.9% to 3.2%, 9.1% and 13.9% respectively. Our page-counts of The Straits Times suggest that the strong AR growth in 2HFY07 has filtered into 1HFY08.

SPH’s AR growth is now in sync with Singapore’s GDP growth, as domestic consumer spending has finally picked up whereas previously, growth was driven by the external sector. SPH’s AR growth has benefitted from more advertising by retailers and an active domestic property sector. The heavy primary residential property launches over the last 2-3 years is now leading to a rise in residential property sub-sales, which is contributing to more classified ads.

SPH is a good defensive stock in times of uncertainty. SPH’s core fundamentals are now supported by a healthy AR growth, Paragon Shopping Mall’s rising rentals on the back of rising rentals in prime shopping locations in Singapore, full-year earnings contributions from Sky@eleven and a high annual net dividend yield of 6-7% p.a. Maintain BUY and our target price of S$5.40 (based on our sum-of-the-parts valuation of S$5.40/share).

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