Kim Eng: Singapore Press Holdings - 15 Apr 2008

2Q08 results

Previous Day Closing price: S$4.43
Recommendation: BUY (maintained)
Target price: S$6.18 (Previous: $5.84)

♦ Another quarter of strong growth
SPH’s recurring earnings increased 36% in 2Q08 on revenue growth of 18.9%. Besides contribution from Sky@eleven, growth was also derived from the print advertisement business and increased rental income from Paragon. Year-to-date, SPH’s recurring earnings and revenue increased by 26.9% and 16.7% respectively. Interim dividend of 8cts/share (1H07: 7cts/share) was declared.

♦ Still the advertisers’ darling
Print advertisement revenue grew 11.3% y/y in 2Q08, continuing the double-digit growth momentum in the previous 3 quarters (Figure 1). Year-to-date, print advertisement revenue growth of 10.9% was ahead of our full-year forecast of 8%. Bearing in mind that advertising activity would decline if the current global economic woes persist, we are maintaining our 8% forecast. Upcoming events like Mobile Number Portability (MNP), Great Singapore Sale and F1 would lend support to our forecasts.

♦ Recognition schedule for Sky@eleven adjusted
Manpower shortage and inclement weather have delayed the construction of Sky@eleven. We are thus adjusting our recognition schedule, reallocating a larger proportion into FY09-10. SPH does not expect the delay to have any significant impact on costs and remain confident of achieving Temporary Occupation Permit (TOP) in FY2010.

♦ Newsprint prices poised to rise significantly
Newsprint prices are expected to trend up significantly due to a recent supply crunch in Asia and higher prices for raw materials and energy. While this threatens the operating margin of SPH’s newspaper and magazine segment, we reckon that a continual pursuit of operational efficiency and a growing property segment (of higher operating margin) would help offset the impact.

♦ TP raised to $6.18
From adjusting our recognition schedule for Sky@eleven, we have reduced our dividend forecast in FY08 from 32.1cts/share to 29.5cts/share, but have correspondingly raised our forecast in FY09-10. We have assumed a payout ratio of 95% on recurring income. Rolling forward our valuation into FY09, we derived a target price of $6.18 (implied FY09 divided yield of 5.5%).