SPH – CIMB

Steady performer

Maintain Outperform; results above expectations. 3Q10 net profit was S$164.6m (+29.9% yoy), accounting for 33% of our full-year estimate. 9M10 net profit grew 47.4% yoy to S$422.6m on revenue growth of 14.0% yoy to S$1,087.6m. 9M10 results were 7% above our forecast and consensus. The outperformance was due to higher-than-expected print ad revenue. Our earnings estimates have been raised by 4-5% after accounting for the higher print ad revenue with our sum-of-the-parts target price raised from S$4.43 to S$4.47. We see stock catalysts from an improving outlook. For investors looking for defensive names, we recommend SPH for its: 1) near-monopoly of the print-ad industry in Singapore, making it a beneficiary of a domestic economic recovery; 2) print business which is well positioned to benefit from a raft of events planned for Asia over the next few years; and 3) dividend yields of 6-7%, comparable to average S-REIT yields and higher than the yields of other large caps.

Print ad revenue staged strong rebound. 3Q10 group revenue grew 26.9% yoy to S$415.0m. Print revenue alone rose 28.1% yoy to S$204.3m, above our expectations. Display ad revenue was up across the sectors with strong growth recorded for banking & finance, telecommunications and government while classified ads were boosted by stronger recruitment ads. Property revenue rose 43.4% yoy to S$135.3m, boosted by Sky@eleven (obtained temporary occupation permit in May) and higher rental income from Paragon. Materials, consumables and broadcasting costs were 14.6% lower yoy due to a 27.3% drop in newsprint costs.

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 Mar 11 and remain way below peak levels. 3Q10 newsprint prices were 35% lower yoy and 2% higher qoq at US$529/MT. SPH is guiding for FY10 charge-out rates of around US$550/MT. Paragon’s latest valuation is S$2.28bn and continues to enjoy high occupancy rates. Clementi Mall is supposed to start operations in 1H11.

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