SPH – UOBKH

Property Boom Fuels Advertising Spending Recovery

Diminishing contraction. UOB Kay Hian page-count monitor of The Straits Times indicates further improvement in advertising spending in July with a smaller yoy contraction of 10% (June: -16%, May: -14%, April: -16%, March: -22%). Anecdotal evidence points to a rise in property ads on the back of Singapore’s residential property boom.

With greater business confidence, hiring is back. The total number of recruitment ad pages has improved from 230 in March to 279 in July. The job market remains healthy with the seasonally-adjusted unemployment rate for 2Q09 remaining unchanged at 3.3%, the same as in 1Q09. Resident unemployment even declined to 4.6% in 2Q09, from 4.8% in 1Q09.

The worst is over. While Singapore Press Holdings (SPH) is usually a latecycle recovery play, we believe its advertising revenue (AR) growth will stage an early comeback this time round, with advertising spending recovery aided by the opening of Singapore’s two mega integrated resorts (IRs) – Marina Bay Sands and Resorts World@Sentosa by end-09/1Q10.

Proxy to an improving domestic economy as well as a yield play. In view of increasing evidence of an advertising spending recovery, we raise our target price for SPH by 13% to S$4.40, in line with our sum-of-the-parts (SOTP) valuation of S$4.38/share. Our previous target price of S$3.90 was pegged at a 10% discount to our SOTP valuation, which has factored in Paragon’s recent
revaluation of S$1.98b in June. SPH offers an attractive annual dividend yield of 6-7%.

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