SPH – DBS

Ads picking up as expected

At a Glance

• 2Q results within expectations; operating profit +34% yoy to S$132.7m

• Print ad revenue on recovery track, positive yoy growth of 13.4% yoy led by newspaper display ads (+20%)

• Unchanged interim dividend of 7 Scents declared

• Key beneficiary of Singapore’s revised GDP. Maintain

Buy; TP: S$4.32; yield of 6.9%

Comment on Results

No surprises for 2Q. 2Q revenue of S$318.7 (+11% yoy) was contributed by newspaper & magazine operations (+8.8% yoy), higher rental revenue (+7.9%) and higher percentage of completion from development property revenues (+26%).

Operating profit grew by a larger 34% to S$132.7m largely arising from lower newsprint charge-out costs (US$521/mt vs US$827/mt in 2Q09) and other operating expenses, offset partially by higher staff costs (+20% yoy). As a result, 2Q net profit ended at S$113.3m (+30%) offset partially by higher taxes.

Display ads post 20% growth. Total print ad revenues posted a positive growth of 13.4% yoy as the economy picks up, with newspaper display ads being the main driver (+20% yoy) while classifieds posted a smaller 6% growth. We continue to expect ad revenue to pick up pace sequentially during the year.

7 cents dividend declared. We expected an 8-cent dividend in line with a partial restoration of staff pay cuts, but were disappointed. We believe management is being cautious and continue to expect 27cents dividend for full year.

Recommendation

Maintain Buy, TP unchanged at S$4.32. We maintain our Buy recommendation, as we believe current share price has yet to fully reflect ad recovery, which should be driven by more activities coming up in 2H as well as a stronger GDP forecast which was just revised up to 7%-9% (2010) by the Singapore Government on a strong 1Q growth. This is also coupled with an attractive yield of 6.9%, is an attractive investment thesis in our view.

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