SPH – CIMB

Core earnings in line

• Below our expectations and consensus. 1Q09 net profit was S$73.0m (-34.8% yoy) vs. our forecast of S$100.1m, accounting for 16% of our full-year estimate. The shortfall was mainly caused by investment losses of S$33.7m (our full-year forecast was +S$27.0m), due to a loss in the value of SPH’s externally managed funds.

• Operating revenue grew 9% yoy to S$340.2m; costs rose less than expected. Led by a fall in recruitment advertisements, print revenue declined 7.3% yoy to S$188.2m. Circulation revenue rose marginally by S$2.2m despite a 2% decline in volume. Property revenue rose 86.3% yoy to S$81.1m, boosted by S$50.7m from Sky@eleven. Materials, consumables and broadcasting costs rose 15.4% yoy to S$51.2m mainly on a 21.3% rise in newsprint costs. Staff costs decreased 2% yoy to S$76.9m.

• Lower-than-expected adex, mainly on lower classifieds. In line with the weakening economy, classified ad revenue fell 17% yoy while display ad revenue fell 4% yoy. Print ad revenue accounted for 55.3% of 1Q09 revenue.

• Forecasts reduced by 9-15%. We believe SPH’s print ad revenue will decline further than expected. As such, we now project an adex decline of 14% for FY09, instead of 8%. However, the impact should be attenuated by cost savings as we expect newsprint costs to retreat in 2009. SPH will be meeting its vendor to negotiate prices this month. Cost savings from potentially lower prices will likely show up in 2H09. We have also cut our investment income estimates.

• Sum-of-the-parts target price lowered to S$3.77 from S$4.01, following reductions in our core media earnings forecasts. Maintain Outperform for its decent dividend yields of more than 6%. SPH is likely to continue paying out a large portion of its recurring earnings as dividends.

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