SPH – DMG

Ads recover

Positive numbers in-line with expectations; TP raised. SPH turned in a set of credible results, thanks once again to the Property segment, which witnessed an acceleration in contribution from its Sky@eleven project. Ad revenue also picked up versus 2QFY09. While we maintain our forecast, we have upped our price target to S$3.59 from S$3.40 previously, due largely to higher valuation ascribed to Paragon (S$1.98b, from S$1.69b). Dividend yield of 6.8% remains attractive, and should lend downside support as the market consolidates. Maintain BUY.

A better performance QoQ. 3QFY09 revenue and net profit both declined by 5% to S$327.1m and S$126.7m respectively. On a QoQ basis, however, the company experienced turnover growth of 13.9% while bottomline surged by 45.6% (recurring earnings: +39.9%). What was commendable was the print business, which saw revenue rise 8.5% QoQ (print ads +9.3%) and suggests the worst is over. Margins showed a general improvement in 3QFY09 with operating margins increasing due to an 18.9% drop in staff costs. Pick-up in classifieds. We see some life being injected back into the classifieds, with the strong pick-up in the property market. The recent news that firms are starting to hire again should drive demand for recruitment
section in the next few quarters.

Newsprint costs to head south. Charge out price increased by 32.5% to US$779 per tonne in 3QFY09 although it dropped 5.8% QoQ. We expect newsprint costs to fall to US$700 per tonne in 4QFY09 and average US$689 per tonne in FY10, which should prop up margins.

Dividends remain a draw. At S$3.21, it offers a dividend yield of 6.8% in FY09, well above the market average. There are worries that the Sky@eleven project is one-off and would leave a big vacuum when it is completed next year. But based on our estimates, the core print business and Paragon will be able to generate at least S$320m in recurring income. Assuming 100% payout, the yield post-Sky@eleven is still a palatable 6.3% at the minimum.

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