SPH – CIMB

No surprises; interim dividend as expected

Maintain Outperform; in line. 2Q10 net profit was S$113.3m (+30.2% yoy), accounting for 22% of our full-year estimate. 1H10 net profit grew 61.2% yoy to S$258.0m on revenue growth of 7.2% yoy to S$672.7m. 1H10 results came in 2% below our forecasts and were in line with consensus. SPH declared an interim dividend of 7 cts/share, in line with our forecast. Our earnings estimates remain intact with our sum-of-the-parts target price unchanged at S$4.50. We maintain Outperform on the back of an improving outlook.

2Q10 operating revenue grew 11% yoy to S$318.7.0m. Within our expectations, print revenue rose 13.3% yoy to S$165.4m. Display and recruitment ad revenue rebounded, while circulation revenue was down by S$1.6m. Property revenue rose 18.0% yoy to S$85.2m, boosted by Sky@eleven revenue and increase in rental income from Paragon. Materials, consumables and broadcasting costs were lower 28.1% yoy due to the 38.4% drop in newsprint costs. As expected, staff costs went up 20.1% due to higher bonus provision.

Ad demand continues to improve. The Saturday edition of The Straits Times averaged 254 pages in March, up 28% yoy and up 12% mom. Ad demand is coming mainly from property developers, telecommunications and FMCGs. We believe the uptrend is sustainable, driven by a robust property market and an improving job market.

Outlook. SPH continues to expect newsprint prices to rise in line with the economic recovery though we are not overly concerned as prices have been locked in till Dec 10 and remain way below peak prices. Sky@eleven is on track to obtain its temporary occupation permit in the coming months while Paragon’s occupancy continues to be high. Clementi Mall is targeted to start operations in 1H11.

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