Positives priced in

• Downgrade to Neutral from Outperform. We downgrade SPH to Neutral as we believe that positives like an ad-demand recovery and retreating newsprint prices have been priced in. The stock should be held up by prospective yields of 6-7%.

• Results beat expectations. FY09 core net profit was S$421.9m (-9.1% yoy), 8% above our expectations and consensus. The outperformance came from higherthan- expected rental revenue and lower-than-expected investment losses. SPH recommended a final dividend of S$0.18/share (normal dividend and special dividend of S$0.09 each), in line with our forecast. Our FY10-11 earnings estimates have been raised by 4-5% on higher media earnings and investment income assumptions. We also introduce FY12 estimates. Our sum-of-the-parts target price has been raised to S$4.38 from 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 7.5% instead of 8.1%.

• Print ad revenue declined in line with expectations. Print revenue fell 16.9% yoy to S$648.3m mainly due to a 17.5% yoy decline in newspaper ad revenue, which itself was due to lower classified revenue (-23.7% yoy) because of lower recruitment ads. Circulation revenue beat forecasts, rising 4.1% yoy to S$214.2m. Property revenue rose 43.2% yoy to S$365.6m, boosted by a S$138.1m rise in revenue from Sky@eleven and an unexpected S$5.3m rise in Paragon’s rental income. We believe it is due to higher rentals. Other operating revenue also beat expectations, expanding S$12.0m yoy. Investment losses were smaller than expected at S$6.1m.

• Costs under control. Staff costs decreased 10.4% yoy to S$286.9m, in line with our expectations thanks to lower bonus provisions, Jobs Credit grants and wage cuts by SPH. Newsprint charge-out prices were slightly lower than expected at US$747/MT.

• Outlook. SPH expects newsprint prices to moderate in the near time though cautioned that prices may rise in FY10 in line with the economic recovery. SPH has recognised S$451.9m of Sky@eleven revenue to date (69% recognised) and the development is on track to obtain its temporary occupation permit by 2010.

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