Press is set to spin
• SPH’s valuation premium vs STI narrowed to 8%, vs average of 34% since 1997;
• Implied newspaper ops undervalued by market at 12x PER, -2 std deviation below average;
• Worst fall for newspaper ads seem to be over; Apr down by 9% yoy vs Jan’s drop of c.25%;
• Upgrade to Buy, TP raised to S$3.70.
Newspaper ops valuation should normalise. SPH’s PE valuation to STI has narrowed to 8%, significantly below 10-year average of 34%. Newspaper operations implied PE is now at 12x, -2 standard deviation from its average. We think the market has under valued it; and, this should trend up towards normalized levels (20x PER) as the economy recovers.
Worst fall in AdEx seems over. AdEx fell sharply during past 2 recessions. But, they also recovered shortly thereafter. Latest data from Nielsen media research shows April’s AdEx for newspaper display and classified ads fell by 9%, significantly better than the 25% y-o-y fall in Jan. We also noted that recent pagination for The Straits Times (Saturday edition) is hovering above 210-odd pages, up from Jan’s 100-plus pages.
Lowered newsprint costs. Newsprint spot price is at around US$550/mt. We lowered our average newsprint charge-out rate to US$760/mt for FY09F and US$580/mt for FY10F.
Paragon valuation out soon. The independent valuation for Paragon should be released in mid-Jun. We expect it to stay above our RNAV estimate of S$1.5bn. There should also be nominal defaults at its development property project (Sky@Eleven), in view of the up tick in transactions and stable prices.
Upgrade to Buy, SOP TP raised to S$3.70. We upgrade our recommendation to Buy, from Hold as we believe the worst fall in AdEx is over. We believe valuations should normalize, and we peg our newspaper operations to 16x FY10F earnings, -1 std dev. of its average (20x).
Advertising spending bounces back from depressed level
Advertising spending bounces back from a depressed level. Deep-value defensives will play catch-up with cyclicals, SPH being the favourite.
Advertising spending is bouncing back from a depressed level. This is evidenced in our page counts of The Straits Times. The Saturday papers, the barometer of advertising spending, point to the beginning of a recovery in advertising spending. Saturday issues typically more than double the average weekday’s pagination as advertisers prefer to advertise on Saturdays. As evidenced in the table overleaf, advertising spending hit a depressed level with The Straits Times’ Saturday issues falling to around 190 pages in March compared with 270 pages a year ago and 250 pages six months ago. Pagination bottomed in April and has since rebounded to above 210 pages in May, albeit The Great Singapore Sales started two weeks ago.
Nevertheless, monthly data from ACNielsen also points to SPH’s advertising revenue (AR) contraction getting smaller from -18% yoy in March to -9% yoy in April. A similar trend is emerging in our page counts of The Straits Times, which suggest SPH’s AR contraction has improved from -22% yoy in March to -16% yoy in April.
SPH offers an attractive risk-reward proposition. As high-beta cyclicals have rallied strongly, the defensives now offer a relatively more attractive riskreward proposition and should start to attract investor interest. SPH, trading at a P/B of 2.6x, offers a 36% upside to its long-term P/B mean valuation of 3.6x. The stock will likely be favoured by investors starting to search for value among the laggard defensives that have not rallied as much as the cyclicals. In addition, SPH offers annual dividend yield of 7-8%. Maintain BUY and our target price of S$3.90, which is based on our sum-of-the-parts (SOTP) valuation of S$3.94/share.
SPH divests its 35% stake in TOM OMG
SPH AlphaOne transfers stake for HK$60m
SINGAPORE Press Holdings (SPH) is divesting its 35 per cent stake in TOM Outdoor Media Group (TOM OMG) for HK$60 million, or about S$11 million.
The media group announced that its wholly owned subsidiary SPH AlphaOne entered into an agreement yesterday to transfer its entire stake in TOM OMG to TOM Outdoor Media Holdings, which owns the remaining 65 per cent.
In March 2006, SPH invested US$26 million to take up its 35 per cent stake in the billboard unit of TOM Group Ltd, a publishing, advertising and Internet company controlled by Hong Kong billionaire Li Ka-shing.
The strategic partnership was SPH’s maiden venture into China’s outdoor advertising sector aimed at gaining a foothold in that sector.
SPH said yesterday that the consideration of HK$60 million was arrived at on a ‘willing buyer willing seller’ basis, and took into account the financial performance and future prospects of TOM OMG.
TOM OMG had posted an audited net loss of HK$13 million for the year ended Dec 31, 2007, and an unaudited net loss of HK$102 million for the year ended Dec 31, 2008.
SPH said that the consideration will be fully settled in cash on the date of completion, which is expected to be 14 days from the signing of the agreement.
The company said that the transaction will have no material impact on its earnings, nor on its net tangible assets per share in the financial year ending Aug 31.
SPH’s chief executive Alan Chan, who is also a director of TOM OMG, will cease to be a TOM OMG director upon completion of the deal.