SGX Yield Stock

It’s different this time

• Maintain Outperform. We have lowered our FY10-12 earnings estimates by 1-4% after factoring in a slower recovery in ad revenue because of a potential slowdown in Europe. Our sum-of-the-parts target price accordingly dips to S$4.43 from S$4.50. Nevertheless, maintain Outperform as SPH’s future earnings should be bolstered by a recovery in ad revenue, in line with Singapore’s improving economy, which we believe, will be held up by resilient Asian economies. We expect stock catalysts from better-than-expected ad demand and lower-than-expected newsprint costs.

• Earnings risks mitigated by still-moderate newsprint prices. In 2008-09, SPH’s ad revenue was down 17% yoy. We expect a 5% recovery in ad revenue over 2010-11 from a low base a year ago. furthermore, newsprint prices are unlikely to hit the 2008 peak of US$700/MT because of an expected economic slowdown in the US and Europe. Also, SPH should benefit from US$ weakness as it print-ad revenue is booked in S$ but newsprint is paid in US$. Overall, with a lower cost base, we believe the impact of a potential slowdown on SPH’s earnings will be less muted than in previous recessions.

• 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 a raft of events planned for Asia over the next few years; and 3) dividend yields of 6-7%, comparable to average S-REIT yields and higher than the yields of other large caps.

Ad to your portfolio

• Recent correction brings further value on the back of improving fundamentals

• Strong Apr AdEx growth of 31% yoy, even stronger than Mar’s 23% yoy growth

• Ad yields on the rise, with more creative ads

• Reiterate Buy; sum-of-parts TP: S$4.42.

AdEx for display and classifieds surged 31% yoy in Apr. With the recent price correction, we believe there is even better value as latest Apr data from Nielsen Media Research shows that AdEx for Display and Classifieds Ads surged 31% yoy, higher than the 23% for Mar. Although the strong growth in the past 2 months could partly be due to the low base effect last year, at the depth of the recession, we expect the growth trend to continue, albeit at a slower rate. Based on SPH’s financial year, YTD AdEx (Sep’09 – Apr’10) is up 11.5% yoy.

Ad yields are improving with more creative ads, World Cup, property launches. There have been more creative ads, for instance the ones carried in 3-D format (12 May ST edition) and an 8-page wrap-around full colour leaflet ad for the launch of a new car model (22 May). Such special colour ads improve yields for SPH. While these could be one-offs, it signifies that advertisers have been more receptive to creativity in terms of ad delivery in traditional newspapers. In addition, the late confirmation of the FIFA World Cup broadcasting rights for Singapore could also swing advertisers towards print, from TV, given the short lead-time. The large number of property sites for tender could also mean sustainability of property launch ads well into 2011.

Reiterate Buy recommendation, TP: S$4.42. 3Q results should be announced in the week commencing 12 July. We believe operating numbers should continue to show better growth from 2Q. We reiterate our Buy recommendation with our sum-of-parts TP at S$4.42. In our view, the recent sell-down looks overdone on the back of firm fundamentals. Dividend yield is also attractive at c.7%.