SPH – DBS

August AdEx grew 8.9%

Story: In the latest Nielsen Media Research’s AdEx figures, expenditure on SPH’s newspaper display and classified ads rose 8.9% y-o-y in Aug. Based on SPH’s full year (Sep 07 – Aug 08), advertising expenditure grew 7% y-o-y, which is similar to our full year estimates.

Point: We note that AdEx tends to correlate with economic growth. In view of a more challenging outlook, we are assuming flat AdEx growth in FY09F (from a 2.5% growth previously). We also assumed higher newsprint cost of US$850/mt, up from US$710 previously assumed. As such, we trimmed our FY09F net profit down by c.8% to S$490.4m. On a bear-case scenario, assuming an 11% plunge in AdEx as per 1998, we estimate that our net profit forecast for FY09F could drop to S$427m, 13% lower than our current estimates. This would equate to a TP of S$3.97 – still above current trading price – assuming all other factors remain constant. However, in our opinion and at this point in time, we do not see such a drastic drop as per 1998.

Relevance: Maintain Buy, TP: S$4.63. Along with a potential slow down in AdEx and a de-rating of the market, we now peg the newspaper operations to 16x FY09F earnings (from 20x previously). Our SOTP valuation is hence revised to S$4.63. In the current volatile market, we like SPH for its defensive feature backed by an attractive net dividend yield of >7.5%. In the last 6 years, SPH have paid out more than 90% of its EBIT). SPH should be reporting its 4Q and FY08 results on 10 Oct and we are projecting a final dividend of 24 Scts (on top of interim dividend of 8 Scts), given growth in core publishing business, growth in its property rental and
further revenue recognition from its Sky@Eleven residential development.

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