SPH – CIMB

Fairly priced

1Q12 media performance was flat, no surprises. Cost pressures appear to be receding with signs of a bottoming for ad demand. But we struggle to find compelling catalysts for outperformance at current levels.

2Q/1H12 profit is slightly below at 22%/47% of our FY12 estimate and consensus on lower investment income. We lower our estimates by 1-3% to factor in the quarter but raise SOP target, incorporating its Sengkang acquisition and higher property values. Maintain Neutral.

Ad demand bottoming

We think ad demand could have bottomed. Ad revenue still declined 2.3% yoy in 2Q12 but the drop had slowed from 1Q12’s -4% as stronger display ads (+3% yoy) partially made up for weaker classified ads (-9%). The former benefitted from property (stronger-than-expected project sales and launches in Feb) and auto ads while classified ads suffered from reduced job ads. Circulation revenue fell for the second consecutive quarter with SPH yet to reap the results of its subscription drives.

Cost pressures receding

Cost pressures receded, expectedly, on softening newsprint prices and lower variable staff bonuses. 2Q12 newsprint costs were up a marginal 4% yoy while staff costs shed 0.3% despite an increased headcount. Newsprint spot prices are softening and savings should flow through as supplies are absorbed. Other opex could remain high on costs from subscription drives.

Not attractive enough

An interim dividend of 7cts has been declared, unchanged from 1H11. The 6% yields are fairly attractive given low interest rates and S$ appreciation. However, we think the yields could have priced in a mature print business and a lack of compelling catalysts. Its exhibition business is doing well with Internet investments turning around though contributions are small. We prefer retail S-REITs like CMT and FCT for their retail exposure and stronger growth potential.

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