SPH – CIMB
Taking flight with adex growth
• Above expectations. This was a strong set of results with FY07 S$506m (+40% yoy) core earnings beating our estimate by 20% and consensus’s by 9%. Key reasons for the surprise were higher investment income (+79% yoy) and a lower tax rate due to adjustments for overprovision. A final DPS of 19cts was announced, bringing full-year DPS to 26cts, ahead of our 25ct expectation.
• FY07 operating revenue jumped 13.6% yoy to S$1.2bn. Core print media revenue grew 5.8% yoy to S$959m in FY07, underpinned by strength in classifieds (S$277m, +9% yoy) and display (S$395m, +6% yoy). Printed ad revenue growth accelerated in 2H07 (+11% yoy vs. 1H07’s 3.5% yoy) on the back of a robust domestic economy. Property revenue grew 80% yoy with the help of Sky@eleven’s maiden contribution of S$71.3m (slightly higher than our estimated 10% revenue recognition for FY07) and Paragon’s S$7.8m revenue growth.
• Operating margins climbed to 37% (+200bp yoy) on higher contributions from the property segment. Core media operating margins remained stable at 35% as strong topline growth and flattish newsprint costs offset a 12.5% yoy rise in staff costs. Newsprint cost benefited from a weaker US$ and lower newsprint prices. Staff costs were higher on headcount growth and higher variable bonuses.
• Raising earnings estimates on positive outlook. Print adex growth is firmly picking up on the back of Singapore’s economic growth. SPH is also benefiting from Sky@eleven contributions and robust rental growth at Paragon. This prompts us to raise our earnings estimates by 9-19% for FY08-09. We also introduce FY10 estimates. DPS estimates have been raised by 3-14% for FY08-09.
• Reiterate Outperform, albeit with reduced target price of S$5.10 (S$5.22 previously). Our sum-of-the-parts valuation has been reduced slightly as we switch our valuation methodology for core media operations to DCF (WACC 7.5%, terminal growth 1%) from 16x CY07 P/E. As a laggard consumer stock profiting from Singapore’s economic upcycle, we believe SPH is poised to deliver strong earnings growth over the next few quarters. We like it as the best-in-class proxy for adex growth in Singapore and yields of 6-8% for FY08-10.