Positives to look forward to

• Maintain Outperform. We lift our sum-of-the-parts target price to S$4.50 from S$4.44 after accounting for higher media earnings and contributions from Clementi Mall. We raise our FY10-12 earnings estimates by 2% to incorporate higher print ad and property revenue estimates, offset by higher interest expense. We believe investors' disappointment with its Clementi Mall acquisition has been priced in. Instead, we urge investors to focus on yoy and mom improvements in ad demand (print ads account for more than 50% of SPH's revenue). We see stock catalysts from better-than-expected ad demand.

• Higher page count led by property and job ads. The Saturday edition of The Straits Times averaged 227 pages in February, down from 252 pages in January, as advertising typically slows down during Chinese New Year. However YTD, the page count is up 22% yoy. We believe the uptrend is sustainable, driven by a robust property market and an improving job market. Concerns over high newsprint costs have also eased as prices have been locked in till Sep 10 and remain way below peak prices.

• Defensive, with high dividend yields. For investors looking for defensive names, we recommend SPH for its: 1) near-monopoly of the print ad industry in Singapore, making it a beneficiary of a domestic economic recovery; 2) print business which is well-positioned to benefit from an influx of events over the next few years following the opening of two new integrated resorts; and 3) dividend yields of 6-7%, comparable to the average S-REIT yield and higher than yields from the other large caps.

Strong AdEx recovery, higher DPS 

• Jan AdEx jumped a strong 26% yoy; recovery not fully reflected in share price

• Upsized S$600m MTN a positive move – higher dividends or investment on the cards

• Raise our DPS expectations; sustained yield of 6.6%-7.2% is an attractive proposition

• Proxy to recovering economy, a key pick in current market conditions; Reiterate Buy, TP: S$4.32

 Strong AdEx growth in January implies potential upside to forecasts. Data from Nielsen Media Research shows AdEx for display and classifieds grew by a strong 26% yoy in Jan and 7.8% for the period from Sep-Jan. This is inline with our full year assumptions of 8% for FY10F, but believe there could be room for upside revision arising from activities such as (i) opening of Marina Bay Sands, coupled with more retail space; (ii) pick up in employment and hence recruitment ads; (iii) more property launches, etc. Newspaper operations PBIT should see a sharp 28% growth in FY10F, after the 24% drop in FY09. Our sensitivity analysis shows that a 1% change in ad revenues growth will impact newspaper PAT by 1.6%.

S$600m MTN – a positive move. The upsized S$600m MTN issue (i) reflects market confidence in the company’s fundamentals; (ii) capitalizes on the low interest rate environment at 2.81% pa; (iii) secures funding for Clementi Mall; and, (iv) signals the possibility of investments and/or higher dividends (along with completion of Sky11). 

Clementi Mall saga priced in; potential S$22-26m from M1 capital reduction. We believe Clementi Mall overbidding saga has been priced in; and, a repeat of an overbidding is unlikely. We could see additional cash for SPH (1.3-1.6 Scts/share), from a capital reduction exercise by M1, expected by our telco analyst. 

Raise DPS forecasts, potential yield of 7.2%. We have revised our DPS expectations to 27 Scts (+2 Scts) and 25 Scts (+5 Scts) for FY10 and FY11 respectively. FY10F EPS trimmed marginally by 2.6% on higher interest expense, excluding returns from application of funds. We like this counter as a proxy for the recovering economy, coupled with its attractive yield of 6.6%-7.2%.

SPH to issue $300m fixed-rate notes

It is the first part of a $1b medium-term note programme

SINGAPORE Press Holdings (SPH) will issue $300 million of fixed-rate notes due in 2015 and has mandated OCBC Bank as dealer.

The issue, announced yesterday, is the first part of a new $1 billion multi-currency medium-term note programme. OCBC has also been appointed arranger for the programme.

SPH said that the net proceeds will be used as general working capital, for capital expenditure and corporate requirements such as acquisitions and investments, and/or refinancing existing borrowings.

At Nov 30, 2009, SPH had $570 million of secured debt. This was at an effective interest rate of 3.18 per cent, according to the latest annual report. It also had some $150 million of unsecured debt. According to the annual report, this was a term loan which, after taking into account interest rate swap arrangements, cost 2.5 per cent a year.

SPH is the latest large Singapore company to tap the local currency bond market. Last year, Temasek Holdings sold $600 million of 20 and 30-year bonds and followed that up earlier this month with a 10-year, $1 billion issue priced at 40 basis points over corresponding 10-year Singdollar swap offer rates.

In January, Sembcorp Marine quadrupled its multi-currency programme from $500 million to $2 billion for ‘flexibility to capitalise on any opportunities should the need arise’.

In September last year, SMRT’s $150 million issue of five-year, fixed-rate notes was two times subscribed.

In April last year, Asia-Pacific Breweries set up a $1 billion multi-currency medium-term note programme and has since issued two tranches to raise $140 million.

SPH publishes 17 newspapers in Singapore including The Business Times, as well as more than 100 magazines in the region. It also has a substantial property arm.