SPH – CIMB

Reasons to remain positive

• Domestic proxy. As our house is expecting a stock-market pullback in the near term, we recommend a return to defensive stocks like SPH. We recommend SPH as a domestic proxy for a recovery in consumption spending and beneficiary of Singapore’s upcoming two integrated resorts, once the resorts start organising events/conferences in 2010.

• Ad demand is gradually coming back. We note that the Saturday edition of the Straits Times averaged 215 pages in August, 46 pages above its low in January. While this was still far below 2008’s peak of 293 pages, we believe the uptrend is sustainable, backed by a booming property market and an improving retail outlook.

• Well-positioned. We believe SPH has competitive advantages over its US peers, which have been badly hurt by falling ad revenues, as SPH has a near monopoly of newspaper advertising in Singapore and is less threatened by Internet advertising.

• Reiterate Outperform. Our FY10-11 earnings estimates have been raised by 1-2% on slightly higher media earnings assumptions. Our sum-of-the-parts target price has been raised from S$3.99 to S$4.05 following our earnings upgrade and a lower risk free rate used, in line with declining house forecasts in recent months. We now value the media business using a WACC of 8.1% instead of 8.3%.