SPH – CIMB

Recovery underway

• Above our forecast and consensus. 3Q09 net profit was S$126.7m (-5% yoy), beating consensus expectations and 20% above our forecast (34% of our full-year estimate). The outperformance came mainly from higher-than-expected operating revenue of S$327.1m (-5% yoy) and lower-than-expected operating expenses thanks to lower-than-expected newsprint costs. In line with our expectations, SPH booked investment gains of S$17.6m. 9M09 revenue was flat at S$954.5m while net profit was S$286.8m (-16.9% yoy), to make up 76% our estimate.

• Ad demand beat expectations. 9M09 print ad revenue declined 16.4% yoy to S$493.7m vs. our forecast of a 20% decline while circulation revenue rose 3.6% to S$160.3m vs. our forecast of a 1% improvement. We modify our assumption from a 20% decline for print ad revenue (pegged to previous recessions) to a 17% decline as we expect 4Q09 print ad revenue to be fairly similar to YTD trends.

• Improving outlook. We continue to believe that ad demand is near a bottom and project a faster recovery for print ads in FY10-11. Concerns over buyers defaulting on Sky@eleven residential units should ease now that property prices have risen with the last transacted price for this project significantly above the launch price of S$975psf. Full-year newsprint costs are likely to be below US$800/MT given that 9M09 newsprint charge-out was US$791/MT.

• Maintain Outperform. We have raised our FY09-11 earnings estimates by 1-6% on the better-than-expected media earnings. We believe SPH’s dominant position in newspaper advertising in Singapore will continue to serve it well. Maintain Outperform with a higher sum-of-the-parts target price of S$3.62 (from S$3.52) following our earnings upgrade.

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