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.
Steady for now
Page count has stabilised. The Straits Times newspaper has grown thicker since the start of the year. Our Saturday-edition page count indicates a steady 200-odd pages in April, above January’s low of 169 pages.
Pandemic impact. During the SARS period (1Q03), adex declined 16% yoy and 1% qoq, with all industries cutting their spending. Geographically, however, SARS-related infections and deaths were concentrated in Hong Kong, China, Taiwan, Vietnam and Singapore. This time round, we expect the impact of swine flu to be less severe than SARS as Asia is not the epicentre.
1Q09 adex fell by 19% yoy. AC Nielsen Media’s latest figures show newspaper advertising expenditure (adex) in 1Q09 declining by 19% yoy and 14% qoq. Extrapolating from this and recent data, SPH’s print ad revenue slid 8% yoy over Sep 08-Apr 09. April figures will be released in mid-May and we continue to expect a yoy decline but mom stability.
Outlook. Although the April page count was steady, we do not expect ad demand to rebound strongly anytime soon. However, we believe that the market has priced in recession-level ad demand, and any better-than-expected performance could catalyse its stock price, we believe. Also, SPH is likely to benefit from lower staff-related costs, thanks to pay cuts. Although management has guided for high newsprint charge-out rates in FY09, newsprint costs are likely to fall from FY10.
No change in earnings estimates. We continue to use past recessions’ print ad revenue declines (of 20%) as a benchmark to forecast FY09 earnings.