SPH – OCBC

Stabilisation Not Equal Recovery

Remains sluggish overall. Singapore Press Holdings (SPH) reported its 3Q09 results with a topline of S$331.2m (-4.8% YoY) while bottomline came in at S$126.7m (-5% YoY). The group experienced an 18.9% reduction in staff costs as the effects of its recently announced pay cuts flowed through the system. However, its core operations dived 13.5%, signalling that the group might still be in for a bumpy ride in the next few quarters.

Key swing factors: Property & Investment. Its property division continued to chalk up a 40% YoY rise in revenue due to stronger-than-expected progress recognition from its Sky@Eleven condo project. However, rental growth from Paragon has started to flatten out and we are pensive on its ability to continue upward rent revisions. SPH’s investment income was another swing factor. While it incurred a 31% YoY fall, it managed to register a S$17.6m absolute gain (mostly due to stronger portfolio valuation) compared to a loss of S$104k in the previous quarter. In view of the volatile market, we opt to retain our conservative estimates for SPH’s investment income.

Display and Classifieds still at rock bottom. SPH continues to have a short runway of visibility for its core business, indicating that businesses are still keeping their advertising belts tightened. SPH’s Display and Classifieds adverts are still experiencing short printing notice periods of 1- 3 weeks and 5-7 days respectively. Businesses are also choosing to utilise black & white or single colour adverts vs. full colour adverts. As such, despite seeing a positive uptick in advert pages printed, profitability remains suppressed. We were updated that all advertising segments are still declining/flat, with the telecoms and finance segments experiencing the most sluggish performance. The only silver lining for advertising lies in the recent acceleration in property launches.

Final quarter will not see recovery. The Great Singapore Sale (GSS) may be able to buffer declines on a QoQ basis but we opine that it would still pale to the comparable GSS quarter in the previous year. We are maintaining our earnings estimates but have bumped up our SOTP valuation in view of a better-than-expected valuation for Paragon at S$1.98b (prev: S$2b valuation). We had estimated S$1.8b. We are retaining our HOLD rating with a SOTP fair value of S$3.31 (prev. S$3.18). Our forecast of 14.5 S cents for SPH’s final dividend can yield 4.7% if investors accumulate around S$3.05.

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