SPH – DBS

A proxy to GDP growth

MTI raises Singapore’s GDP forecast to 7%-9%; our economist also raised his forecast to 9%, from 7%

SPH looks poised to ride on stronger GDP growth given its proxy to the economy

Raise earnings by 2% on higher ad growth assumption, offset partially by higher costs

Maintain Buy, TP raised to S$4.42

Remain positive. We hosted a post 2Q10 results luncheon with SPH management and remain confident that SPH will see sequential improvement in operating results arising from better economic outlook, in conjunction with a higher GDP forecast by MTI. During the luncheon, there were wide-ranging questions from its operations, properties, costs and strategies, which we have summarized inside this report.

Proxy to the economy. MTI revised up Singapore’s GDP to 7%-9%, from 4.5%-6.5% previously. With ad revenue growth trend correlated to GDP growth, we believe there presents further upside to SPH’s ad revenue in ensuing quarters. We are now assuming a 10% growth in ad revenue for FY10, though the flow through effects to net profit is partially offset by higher staff costs. As such, we revised our FY10 earnings up by c.2%.

Maintain Buy, TP: S$4.42. Our sum-of-parts TP is raised to S$4.42. We believe SPH is well-poised to ride on Singapore’s economy, which is now projected to grow stronger. Its strong balance sheet also allows it to capitalize on any investment opportunities that may arise. We believe the dividend yield of 6.8% would provide support for share price.

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