Risks have declined

• Shift to laggards. Equity markets have been rallying in recent months. As we are expecting a pullback in the near term given expectations of less-positive economic data from the US, we would advocate a return to defensives like SPH. Furthermore, SPH has been a laggard in the recent rally, underperforming the STI by 36% despite gaining 22% since Mar 09.

• Ad demand has bottomed. Our page count indicates that print advertising revenue bottomed out early this year. The page count for the latest Saturday edition was 218 pages, above Jan 09’s low of 169 pages. However, it will take time for SPH’s advertising revenue to recover to boom-time levels. Yoy, the Saturday edition page count was down by 68 pages to 200 in May 09. Even so, with sell-side analysts still adopting the previous recession for forecasting media revenue, we believe there could be upside if ad demand stays resilient.

• Recent rally reduces earnings risks. Concerns over buyers defaulting on Sky@eleven residential units should ease now that property prices have risen. The last transacted price for this project was above the launch price of S$975psf. Also, investment losses booked in 1H09 could turn into gains in 3Q09, given recent market rallies.

• Outperform. We have raised our FY09 earnings estimate by 5% to account for lower investment losses. Our sum-of-the-parts target price remains S$3.52.

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