SPH – CS
Faster-than-expected pace of recovery so far in FY10
● According to the CS Page Monitor, newspaper ad demand pickedup further in 1Q FY10, after bottoming in 3Q FY09. Estimated total classified volume fell 9% YoY in the first two months (September and October) of 1Q FY10 – a big improvement from the – 17% in 4Q and -33% in 3Q. In addition, our page count indicates that display ad volume fell by ‘only’ 3% during the same period, versus -9% in 4Q and -11% in 3Q.
● In fact, our work shows that display and non-job classified ad volume grew YoY in October – the first time since the ad volume grew YoY in August/September 2008. Our FY10E total newspaper ad revenue forecast of -6% might be too conservative if the pace of improvement continues to surprise on the upside. Our sensitivity analysis shows that every 5% upgrade in FY10E ad revenue forecast translates into a +6% net profit revision (and +9% media profit upgrade) for SPH.
● While SPH has started to outperform, it continues to trade at a discount to the market. We maintain our OUTPERFORM rating with a target price of S$4.41.