SPH – DBSV

Cash falling from the Sky

SPH estimated to have collected S$429m cash from Sky11 on TOP, equating to 27Scts/share

Final/special dividend could exceed consensus’ expectations; we expect 24 Scts/5.7% final yield

Buy ahead of full year results on 12 Oct. Reiterate Buy, SOP backed TP raised to S$4.52

Expect above-consensus final dividend; we look for 24 Scts final/special at full year. We are hopeful that final/special dividends to be declared at full year could beat consensus’ average of c.19 Scts. We have raised our final/special dividend expectation to 24 Scts premised on: (i) large cash inflow from Sky11; (ii) strong recovery in AdEx supported by economic growth; and (iii) historical track record of a payout of above 80% of PBIT.

Chunk of cash (S$429m) falling from the Sky. As at end 3Q10, SPH had S$663m in accounts receivables. Of this, we estimate that about S$530m were receivables from Sky@Eleven (Sky11), as the property development project was on the deferred payment scheme. Netting off 15% of sales proceeds (c.S$101m) to be collected upon transfer of legal title (expected about 1 year from TOP), we estimate that the Group will have collected/will be collecting c.S$429m in cash, equating to c.27 Scts/share or a cash yield of 6.4%.

AdEx shows strong YTD growth of 13.8%; dividend payout >80% PBIT. Operations remain firm, with Nielsen Media Research’s display & classified AdEx registering YTD growth (Sep’09-Jul’10) of 13.8%. July’s growth was 20% yoy. History has shown that dividend payout has also been above c.80% PBIT for the past 10 years, except for last year (76%). We believe this practice should continue, on the back of firm fundamentals and operations.

Buy ahead of results release (12 Oct); TP raised to S$4.52. We raised our sum-of-parts TP to S$4.52 as we factor in a higher valuation for Paragon, pegging a 10% discount to latest valuation (S$2.28bn), up from S$1.98bn previously. The possibility of a higher-than-expected final DPS (24 Scts or 5.7% yield) is attractive, leading to a full year dividend yield of 7.4% – 7 cents were paid at interim stage. We reiterate SPH as a top pick among our dividend yield plays, and a proxy riding on the economic recovery in Singapore.

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