SPH – CIMB

Steady for now

Update

Page count has stabilised. The Straits Times newspaper has grown thicker since the start of the year. Our Saturday-edition page count indicates a steady 200-odd pages in April, above January’s low of 169 pages.

Pandemic impact. During the SARS period (1Q03), adex declined 16% yoy and 1% qoq, with all industries cutting their spending. Geographically, however, SARS-related infections and deaths were concentrated in Hong Kong, China, Taiwan, Vietnam and Singapore. This time round, we expect the impact of swine flu to be less severe than SARS as Asia is not the epicentre.

1Q09 adex fell by 19% yoy. AC Nielsen Media’s latest figures show newspaper advertising expenditure (adex) in 1Q09 declining by 19% yoy and 14% qoq. Extrapolating from this and recent data, SPH’s print ad revenue slid 8% yoy over Sep 08-Apr 09. April figures will be released in mid-May and we continue to expect a yoy decline but mom stability.

Outlook. Although the April page count was steady, we do not expect ad demand to rebound strongly anytime soon. However, we believe that the market has priced in recession-level ad demand, and any better-than-expected performance could catalyse its stock price, we believe. Also, SPH is likely to benefit from lower staff-related costs, thanks to pay cuts. Although management has guided for high newsprint charge-out rates in FY09, newsprint costs are likely to fall from FY10.

No change in earnings estimates. We continue to use past recessions’ print ad revenue declines (of 20%) as a benchmark to forecast FY09 earnings.