SPH – DBS

Strong AdEx recovery, higher DPS 

Jan AdEx jumped a strong 26% yoy; recovery not fully reflected in share price

Upsized S$600m MTN a positive move – higher dividends or investment on the cards

Raise our DPS expectations; sustained yield of 6.6%-7.2% is an attractive proposition

Proxy to recovering economy, a key pick in current market conditions; Reiterate Buy, TP: S$4.32

 Strong AdEx growth in January implies potential upside to forecasts. Data from Nielsen Media Research shows AdEx for display and classifieds grew by a strong 26% yoy in Jan and 7.8% for the period from Sep-Jan. This is inline with our full year assumptions of 8% for FY10F, but believe there could be room for upside revision arising from activities such as (i) opening of Marina Bay Sands, coupled with more retail space; (ii) pick up in employment and hence recruitment ads; (iii) more property launches, etc. Newspaper operations PBIT should see a sharp 28% growth in FY10F, after the 24% drop in FY09. Our sensitivity analysis shows that a 1% change in ad revenues growth will impact newspaper PAT by 1.6%.

S$600m MTN – a positive move. The upsized S$600m MTN issue (i) reflects market confidence in the company’s fundamentals; (ii) capitalizes on the low interest rate environment at 2.81% pa; (iii) secures funding for Clementi Mall; and, (iv) signals the possibility of investments and/or higher dividends (along with completion of Sky11). 

Clementi Mall saga priced in; potential S$22-26m from M1 capital reduction. We believe Clementi Mall overbidding saga has been priced in; and, a repeat of an overbidding is unlikely. We could see additional cash for SPH (1.3-1.6 Scts/share), from a capital reduction exercise by M1, expected by our telco analyst. 

Raise DPS forecasts, potential yield of 7.2%. We have revised our DPS expectations to 27 Scts (+2 Scts) and 25 Scts (+5 Scts) for FY10 and FY11 respectively. FY10F EPS trimmed marginally by 2.6% on higher interest expense, excluding returns from application of funds. We like this counter as a proxy for the recovering economy, coupled with its attractive yield of 6.6%-7.2%.

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