SPH – UBS
Core business doing well
• 30% increase in net profit YoY
Singapore Press (SPH) reported net profit of S$113m for Q2 FY10, 16% below our forecast. The difference was due to lower property and investment income. We are not overly concerned about the lower property income as we believe this is a timing issue. The core business did well and we think the momentum could continue given the strength of the economy. We reiterate our Buy rating with a price target of S$4.40.
• Room for upside in core business
Newspaper advertising was strong with display ads up 20% YoY and classified ads up 6.4%. On an annualised basis, the first half advertising revenue is still 11% below the high reached in FY08. We believe this gap will close, especially if the tourism industry picks up on the opening of the two integrated resorts.
• Sky@Eleven to be completed in a few months
The company has indicated that its Sky@Eleven project would be completed in the next few months. We had assumed it might finish towards the end of the year and as a result we have brought forward the Sky@Eleven revenue recognition. Our EPS forecasts for FY10, FY11 and FY12 are S$0.32, S$0.26 and S$0.27, respectively.
• Valuation: 13.5x one-year forward earnings, 20% below 10-year mean
We derive our price target from a DCF-based methodology, explicitly forecasting long-term valuation drivers using UBS’s VCAM tool. Our key assumptions include a WACC of 7.35% and long-term growth of 3%.