Job Ads Are Rebounding From Depressed Level

Job ads are rebounding from depressed level. Job ads started sliding from August last year (a total of 408 job ad pages) to hit a depressed level in December (172 pages, -41% yoy), according to our page-counts of The Straits Times. The latest May page-count is a clear sign that confidence is returning with recruitment drive stepping up. Job ads in The Straits Times totalled 230 (-48% yoy), 224 (-46% yoy) and 258 (-38% yoy) pages in March, April and May respectively. Apart from rising advertising spending, this trend also points to broader positive macroeconomic implications.

Worst in 3QFY09, but monthly data suggest a gradual recovery. Singapore Press Holdings (SPH) will be releasing its 3QFY09 results in early-July. 3QFY09 is likely to show the worst performance in the current economic crisis. Our page-counts point to an 18% yoy contraction in SPH’s advertising revenue (AR) in 3QFY09 (2QFY09 page-counts: -13% yoy). Our monthly page-counts, however, are showing a gradual recovery with a contraction of 23% yoy, 16% yoy and 14% yoy in March, April and May AR respectively.

Newsprint price continues on a downtrend. The price of 30-lb newsprint currently stands at US$550/tonne and has yet to bottom. Newsprint price peaked at US$760/tonne in December and has been on a decline since then.

Defensives to play catch-up with cyclicals, which have rallied strongly in the current market rebound from March lows. With advertising spending showing signs of a gradual recovery, we see a re-rating of SPH. While the stock is usually a late-cycle recovery play, we believe it will stage an early comeback this time round, aided by the opening of Singapore’s two mega integrated resorts, Marina Bay Sands and ResortsWorld@Sentosa. We maintain our BUY call and target price of S$3.90.

Violation of key support suggests further downside in the near term

– SPH could see more downside pressure in the days ahead following the breach of the lower boundary of the 3-month uptrend channel and the key resistance-turned-support level of $3.10 in the last trading session.

– With the RSI displaying a bearish divergence to the price action over the last 2 months and the MACD breaking under its 3-month uptrend line yesterday, they seem to echo our views that the uptrend momentum is waning and a further correction is likely.

– We expect the stock to find initial support at $2.82 (the next key resistance turned support level), breaking which, the next support is likely at $2.62 (minor troughs in Jan and Feb ‘09)

– Immediate resistance is pegged at $3.10 (key support-turned-resistance level), ahead of $3.29 (Jan ’08 and Jun ’09 peaks).

Risks have declined

• Shift to laggards. Equity markets have been rallying in recent months. As we are expecting a pullback in the near term given expectations of less-positive economic data from the US, we would advocate a return to defensives like SPH. Furthermore, SPH has been a laggard in the recent rally, underperforming the STI by 36% despite gaining 22% since Mar 09.

• Ad demand has bottomed. Our page count indicates that print advertising revenue bottomed out early this year. The page count for the latest Saturday edition was 218 pages, above Jan 09’s low of 169 pages. However, it will take time for SPH’s advertising revenue to recover to boom-time levels. Yoy, the Saturday edition page count was down by 68 pages to 200 in May 09. Even so, with sell-side analysts still adopting the previous recession for forecasting media revenue, we believe there could be upside if ad demand stays resilient.

• Recent rally reduces earnings risks. Concerns over buyers defaulting on Sky@eleven residential units should ease now that property prices have risen. The last transacted price for this project was above the launch price of S$975psf. Also, investment losses booked in 1H09 could turn into gains in 3Q09, given recent market rallies.

• Outperform. We have raised our FY09 earnings estimate by 5% to account for lower investment losses. Our sum-of-the-parts target price remains S$3.52.

Sky@eleven fears debunked

Twin DPS fears over Sky@eleven unfounded; Maintain BUY. The market has been worried over the possibility of default over the deferred payment scheme as well as dividend payout beyond Sky@eleven. We believe that such fears are unfounded. The condominium project is a bonus to SPH, and following the project’s TOP, investors will continue to enjoy good yields. Maintain BUY with a SOTP-based price target of S$3.40.

Deferred payment scheme (DPS) to hit this year’s payout? The market is speculating that SPH may hold back on paying out the earnings from Sky@eleven till the money comes in upon TOP, dragging payout ratio down to 70% (90% in FY08). In our view, that is unlikely and we expect payout to be at 90%. SPH has stated that it will pay out a “high percentage of recurring earnings” and not cashflow. It has the capability to do so, given its healthy balance sheet (net gearing of 12%) and low capex requirements. We believe that default risk is low for the project, and have gotten even lower with the revival of the property market. CDL’s The Arte, which is also located in the Thomson area, saw keen interest and units were sold at an average of S$1,000 psf (S$975 psf for Sky@eleven). Should buyers default, SPH actually stands to benefit as it has already collected the first 20% as down payment.

Dividend per share (DPS) beyond Sky@eleven to dive? Contributions from Sky@eleven account for 30-35% of dividends over the next two years. In FY11, there will no longer be any contributions coming through from property development when the project TOPs. We believe that Paragon, which has seen its rental space expand 6% to 700k sq ft after its recent renovation, will partially make up for the vacuum. We have assumed a 10% average rental growth to S$14.9 psf/month by 2011, which we believe to be a conservative figure given the successful remaking of Orchard Road. This will raise rental from Paragon by 17% from FY08. Coupled with its core newspaper business, SPH should be able to dish out at least S$320m in dividends (or S$0.20 per share) post Sky@eleven, and more during good years. At current share price, this works out to a palatable yield of 6.3%.

Laggard has legs to run
SPH gained 12.1% over the last three months but still underperformed the market by 25.1%. This laggard is closing the gap as the market sees the “green shoots” of an economic recovery. Print ad revenue to-date declined only 12.7% yoy compared to our full-year assumption of a 25% decline. Hence, our earnings estimates have a good potential for upside should the signs of recovery continue into 2H09.

Early signs of recovery in recruitment
The average page count in May for the Saturday editions of The Straits Times showed a robust m-o-m recovery. We also observed an improvement in job ads volume. However, we note that the pick-up is attributable to 2Q and 3Q being seasonally busier hiring periods. Job ads volume, being the key driver of Classified and a leading indicator of Display ad demand, provide insights on the outlook of SPH. Job ads data in the coming months is therefore crucial.

Improving sentiments tell of more news ad demand to come
The recent optimism in the property market is reflected in the Classified as more property ads have surfaced, and big, coloured Display property ads are increasingly being placed. There is hope for more Display property ads to boost revenue as an increasing number of developers are reportedly preparing to launch new projects in view of the positive sentiments in the property market.

Investible fund could get a boost from the rally
The improvement in the performance of the capital markets in the last three months, if it continues, will benefit SPH’s bottomline as its $0.9b investible fund still has sizable exposures to equities (30.6%), bonds (20%) and investment funds (12.5%). The remaining 36.9% is held in cash and deposits.

Dividend yield remains intact; maintain Buy
Our SOTP target price is raised to $3.46, reflecting a lower equity risk premium for its core media business. Our earnings estimates remain intact. At an implied PER valuation of 12.4x, the core media business is still trading close to its ten-year trough. We maintain Buy, based on a potential price upside of 11.6% and dividend yield of 7.2%.