SPH – CS

Slower ad revenue growth expected in 4Q

● According to the CS Page Monitor, jobs ad volume moderated to +31% in 4Q FY10 (June-August), from 3Q FY10’s estimated +57%. Non-job classified ad volume fell 10% for the same period, bringing the total classified volume to just +1% YoY.

● Display ad volume grew 8% YoY during 4Q, compared with the estimated +15% in 3Q FY10. The latest page count data supports our view that newspaper ad growth peaked in 3Q FY10. SPH is scheduled to report its 4Q FY10 results on 12 October 2010.

● Nevertheless, we believe SPH will continue to benefit from healthy private consumption growth in Singapore. Overall, the company is a key beneficiary of Singapore’s tight labour market.

● YTD, the stock has risen 11% (and outperformed the STI by 9%), but it is still trading at only 3% P/E premium to the market (excluding contributions from Sky@eleven) versus the 10-year average premium of 30%. As such, we maintain our OUTPERFORM rating. Our SOTP-based target price of S$4.75 represents 16% upside potential. The dividend yield also remains attractive at 6%.

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