SPH – OCBC

Slowing core business in 2009

Slowing growth. Singapore Press Holdings (SPH) reported its 4Q08 results last Friday with flat operating revenue of S$351.6m while net profit dove 26.3% YoY to S$92.5m. The bad bottomline performance was primarily due to a non-cash impairment write-down of S$26.7m for SPH’s 35% owned associate, TOM Outdoor Media Group (TOM). On a full year basis, SPH delivered 12.3% YoY topline growth to S$1.316b but PATMI still fell 12.4% YoY to S$437.4m. The topline was helped by a stronger recognition of the Sky@Eleven project while the poorer bottomline was due to less investment income and the impairment charge.

Less adverts expected with a technical recession. MAS stated that “Looking ahead, the outlook for the global economy has deteriorated amidst heightened risk aversion and de-leveraging in the financial sector”. The official forecast of GDP growth projection was down to 3.00% (prev. 4-5%), adding that “the growth of the Singapore economy is expected to remain below potential in the period ahead”. Management has indicated that advert requests have been slowing in view of the macro environment.

Rise in print costs in next 3 quarters. Management has again highlighted rising newsprint costs. As such, we raise our newsprint costs by between 18-35% (ref recent quarter’s price) for the next 3 quarters in view of supply curtailment (lines shutting down) and escalating production costs on the back of high paper demand, partly due to the US elections. We will re-jig our costs estimates if we see a strong and sustained correction in prices. Cash preservation. While SPH has stepped up its dividend/share to S$0.27 for FY08, management has iterated that it does not have a dividend policy. We discount Sky@Eleven’s stronger revenue recognition as it is non-cash in nature in view of its deferred payment scheme. With the gloomy outlook, we have assumed that SPH will cut its dividend/share to S$0.24 in an effort to preserve capital. Despite the lowered assumption, yield continues at 6.9% in view of the massive correction in share price.

Maintain BUY. While the STI has deteriorated 31.9% YTD, SPH has demonstrated its resilience with a smaller fall of 11.6% YTD. We tweaked our FY09 estimates slightly as we gain more clarity on segmental revenue prospects (stronger non-cash revenue recognition of Sky@Eleven but slower Adex) as well as cost projections. Our SOTP is now S$5.14 (prev S$5.25). Maintain BUY.

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