SPH – DBS

What’s news on 13 Apr

A peek into 2Q09 results. We expect SPH’s 2Q09 operating profits on 13 Apr to fall c.12% y-o-y to just about S$103m. This is based on a 17% drop in advertising revenue and high newsprint charge out rate, offset by higher property contributions. We reiterate our belief that the share price has factored this in. Despite rebounding by 13% since our upgrade on 13 Mar, share price is still down by 20% YTD. We think an 8 cents interim dividend, similar to 1H08, can be expected. Maintain Buy, TP remains at S$2.93.

Fall in ad revenues but priced in. We expect 2Q’s operating profits to dip by about 12% y-o-y, and 23% q-oq, to about S$103m. We should see ad revenues fall by about 17% y-o-y, worsening from 1Q’s 7% drop. Higher newsprint charge-out rates will also put pressure on newspaper operations. But, we reiterate our belief that these have been priced in.

Property division provide buffer. This is largely on our expectations of an increased revenue contribution from its property development (Sky@Eleven). We expect about $60 – 65m revenue contribution in 2Q. This coupled with recurring rental income (S$30m) should contribute c. S$95m.

Expect 8 cents interim DPS. An 8 cents interim dividend, similar to 1H08, can be expected. This equates to about 55% of operating profits, in line with preceding years. Our 20cents DPS for FY09 is lowest among consensus. Even so, this equates to a yield of c. 7.6%.

Taken in conservative assumptions. We have already assumed a 20% drop in ad revenues, a high newsprint charge-out rate (US$800/mt vs spot rate of US$660/mt) and a 20% drop in asking rents (for Paragon) for FY09F. We have also introduced FY11F forecasts.

Valuations still undemanding, Buy. Despite having appreciated by 13% since our upgrade on 13 Mar, share price is still 20% down YTD. Valuations are still undemanding at 9.4x implied newspaper earnings, 2x P/B and 7.6% yield. Maintain Buy, TP unchanged at $2.93.

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