Steady ad demand

• Maintain Outperform. Following our recent meeting with management, we remain confident about SPH’s prospects. We expect ad demand to improve further yoy from healthy retail and job markets. No change to our earnings estimates. Our sum-of-the parts target price remains S$4.47. Maintain Outperform as SPH’s future earnings should be bolstered by higher ad demand, in line with Singapore’s improving economy. We expect stock catalysts from lower-than-expected newsprint costs.

• Expect pick-up in ad demand come 1Q11. The Saturday edition of The Straits Times averaged 228 pages in August, up 7% yoy but down 6% mom due to a quieter property market during the Hungry Ghost month. However, we believe there will be a pick-up in ad demand come 1Q11 (September-November) as the festive season approaches. YTD page count is up 19% yoy. In line with the economic recovery, newsprint prices have been climbing to US$600-650MT, though still much below peak prices. Newsprint prices have been locked in till Mar 11.

• Reasons to like SPH. We continue to like SPH as we believe its print business is well-positioned to benefit from events planned for Asia over the next few years. Also, its dividend yields of 6-7% are comparable to average S-REIT yields and higher than the yields of other large caps.

Ahead Of Final Results

• Looks as if some have started to speculate on how generous SPH is likely to be with its final & special dividend payout for ye Aug ’10, results for which are not due for another month or so (Oct 12th last year).

• The stock has risen 23 cents or 6% in just over 2 weeks, to $4.15 yesterday.

• SPH’s dividend had been steadily rising, until ye Aug ’09 (covering the worst period of the financial crisis), when it was cut to 25 cents (7 interim + 9 final + 9 special) from the peak of 27 cents the year before (8+9+10).

• We expect SPH to reinstate the final special to 10 cents (and it can more than afford to given the sharp recovery in advertising spending), which with the 7 cents interim already paid, would bring the total for the year to 26 cents, giving a 6.3% yield. (Net profit for 9 months ended May ’10 of $422.6 mln was 23.7% above the same period the fiscal year before.)

• This has to be considered attractive.

• Yesterday’s $4.15 close has some technical significance, being close to the support-turned resistance level, ie need for some “consolidation”:

– In July ’08, SPH had breached support at the $4.20 level, which had held for much of the period since 2005, and has not been able to surpass the level since.

– The top end of the range had generally been around $4.70-4.80, except for a few occasions when SPH hit as high as $4.90 in Oct ’05, and as low as $3.88 in Aug ’06. (The high in 2007 was $4.74.)

– It bottomed at $2.32 in Mar ’09, like just every other stock in the world.

• A commitment by management to a dividend policy would, we believe, enable SPH to retest its high, and possibly even scale new heights.

• We maintain BUY.

Ahead Of Final Results

• Looks as if some have started to speculate on how generous SPH is likely to be with its final & special dividend payout for ye Aug ’10, results for which are not due for another month or so (Oct 12th last year).

• The stock has risen 23 cents or 6% in just over 2 weeks, to $4.15 yesterday.

• SPH’s dividend had been steadily rising, until ye Aug ’09 (covering the worst period of the financial crisis), when it was cut to 25 cents (7 interim + 9 final + 9 special) from the peak of 27 cents the year before (8+9+10).

• We expect SPH to reinstate the final special to 10 cents (and it can more than afford to given the sharp recovery in advertising spending), which with the 7 cents interim already paid, would bring the total for the year to 26 cents, giving a 6.3% yield. (Net profit for 9 months ended May ’10 of $422.6 mln was 23.7% above the same period the fiscal year before.)

• This has to be considered attractive.

• Yesterday’s $4.15 close has some technical significance, being close to the support-turned resistance level, ie need for some “consolidation”:

– In July ’08, SPH had breached support at the $4.20 level, which had held for much of the period since 2005, and has not been able to surpass the level since.

– The top end of the range had generally been around $4.70-4.80, except for a few occasions when SPH hit as high as $4.90 in Oct ’05, and as low as $3.88 in Aug ’06. (The high in 2007 was $4.74.)

– It bottomed at $2.32 in Mar ’09, like just every other stock in the world.

• A commitment by management to a dividend policy would, we believe, enable SPH to retest its high, and possibly even scale new heights.

• We maintain BUY.

Worth a trade for FY10’s bumper final dividend

What’s New

• Singapore Press Holdings (SPH) will be announcing FY10’s final dividend in its results release on Tuesday, 12 October.

Stock Impact

• We expect SPH’s share price to rally in the run-up to the release of its FY10 final results on Tuesday, 12 October. This was the case in seven of the last 10 years. The three years that did not mirror this traditional rally were 2000 – due to the tech bubble collapse, 2001 – due to the Sep 11 terrorist attack, and 2008 – the recent global financial meltdown.

• This time round, investors can look forward to a bumper final dividend from SPH given expected strong earnings in FY10. We forecast full-year EPS of 31.7 cents, in line with consensus of 31.6 cents. Our final DPS base-case estimate is 22 cents while our best-case estimate is 24 cents. This translates into a final net dividend yield of 5.4% and 5.9% respectively.

• Investors need not wait for SPH’s actual dividend payout to enjoy the return. History has shown that share price will normally rally in anticipation of the dividend announcement in SPH’s final results. A probable return of >5% in a short period of six weeks is worth a trade.

Earnings Revision/Risk

• No earnings revision. The risk to our final DPS estimate is management’s decision to retain more cash, in view of tempered global economic growth from 2H10 onwards.

Valuation/Recommendation

• Maintain BUY and target price of S$4.50.

Share Price Catalyst

• Near-term share price catalyst is FY10’s final dividend.

Slower ad revenue growth expected in 4Q

● According to the CS Page Monitor, jobs ad volume moderated to +31% in 4Q FY10 (June-August), from 3Q FY10’s estimated +57%. Non-job classified ad volume fell 10% for the same period, bringing the total classified volume to just +1% YoY.

● Display ad volume grew 8% YoY during 4Q, compared with the estimated +15% in 3Q FY10. The latest page count data supports our view that newspaper ad growth peaked in 3Q FY10. SPH is scheduled to report its 4Q FY10 results on 12 October 2010.

● Nevertheless, we believe SPH will continue to benefit from healthy private consumption growth in Singapore. Overall, the company is a key beneficiary of Singapore’s tight labour market.

● YTD, the stock has risen 11% (and outperformed the STI by 9%), but it is still trading at only 3% P/E premium to the market (excluding contributions from Sky@eleven) versus the 10-year average premium of 30%. As such, we maintain our OUTPERFORM rating. Our SOTP-based target price of S$4.75 represents 16% upside potential. The dividend yield also remains attractive at 6%.