SPH – DBS

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Recent correction brings further value on the back of improving fundamentals

Strong Apr AdEx growth of 31% yoy, even stronger than Mar’s 23% yoy growth

Ad yields on the rise, with more creative ads

Reiterate Buy; sum-of-parts TP: S$4.42.

AdEx for display and classifieds surged 31% yoy in Apr. With the recent price correction, we believe there is even better value as latest Apr data from Nielsen Media Research shows that AdEx for Display and Classifieds Ads surged 31% yoy, higher than the 23% for Mar. Although the strong growth in the past 2 months could partly be due to the low base effect last year, at the depth of the recession, we expect the growth trend to continue, albeit at a slower rate. Based on SPH’s financial year, YTD AdEx (Sep’09 – Apr’10) is up 11.5% yoy.

Ad yields are improving with more creative ads, World Cup, property launches. There have been more creative ads, for instance the ones carried in 3-D format (12 May ST edition) and an 8-page wrap-around full colour leaflet ad for the launch of a new car model (22 May). Such special colour ads improve yields for SPH. While these could be one-offs, it signifies that advertisers have been more receptive to creativity in terms of ad delivery in traditional newspapers. In addition, the late confirmation of the FIFA World Cup broadcasting rights for Singapore could also swing advertisers towards print, from TV, given the short lead-time. The large number of property sites for tender could also mean sustainability of property launch ads well into 2011.

Reiterate Buy recommendation, TP: S$4.42. 3Q results should be announced in the week commencing 12 July. We believe operating numbers should continue to show better growth from 2Q. We reiterate our Buy recommendation with our sum-of-parts TP at S$4.42. In our view, the recent sell-down looks overdone on the back of firm fundamentals. Dividend yield is also attractive at c.7%.

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