SPH – CIMB

Steady ad demand

In line; maintain Neutral. 1Q11 net profit of S$102.3m met our forecast and consensus’s, forming 25% of our FY11 estimate. Net profit was lower by 29% yoy due to the absence of property development profit from Sky@eleven. Stripping out S$50.3m of development profit in 1Q10, 1Q11 net profit would have climbed 8.4% yoy on stronger print ad and rental profit. We keep our earnings estimates and sumof-the-parts target price of S$4.51. Maintain Neutral in view of rising newsprint costs and risks of lower property-ad demand following recent tightening in the property market. SPH should, however, be supported by dividend yields of 6-7% expected for FY11-13. Re-rating catalysts could come from higher-than-expected print-ad revenue and accretive property acquisitions, in our view.

Strong print ad and rental. Excluding S$70.1m of revenue from Sky@eleven in 1Q10, revenue grew 12.3% yoy on stronger print ad (+13%) and rentals from Paragon (+26%). Display ads benefited from property advertising while rentals grew on positive rental revisions and increased floor area at Paragon. Circulation revenue fell 2.1% on lower copies sold. Staff costs rose 15.6% on higher variable bonus provisions and partial wage restoration while newsprint costs rose 13% on higher consumption and higher average charge-out prices of US$607/MT.

Outlook. Ad demand should continue to grow along with the economy. The recent tightening in the property market, however, could affect property-buying sentiment and thus ad demand. Newsprint prices are expected to trend higher though a weaker US$ should provide some reprieve. Spot prices for newsprint are about US$650/MT and SPH is covered up till May 11. It is also trying to lift its average ad ratio above 60% to reduce newsprint consumption.

Clementi Mall. About 85% of the retail space at 60%-owned Clementi Mall has been leased out and SPH expects full tenancy commitment when the mall is officially opened in Apr 11. Lower floor levels housing supermarket Fairprice Finest and other shops have started operating. Other major tenants include the Land Transport Authority, Foodfare Foodcourt and National Library Board.

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