Singapore Press Holdings (KimEng)

Event

Singapore Press Holdings (SPH) will announce its full-year results on 12 October 2011. We expect revenue to come in at $1,228.0m (-11% YoY) and net profit of $358.2m (-28% YoY). The recent market meltdown has seen its forward yield increase to an attractive 6.6%. However, we think the stock is oversold as the market seems to have factored in a steep drop in its media earnings. Upgrade to BUY from HOLD with a lower target price of $4.17, based on a total return of 17.9%.

Our View

In view of the global economic uncertainties, we cut our print ad growth assumptions to -2% for FY Aug12 and -5% for FY Aug13, from 5% and 6% respectively. Newsprint costs should start to soften as well, usually with a time lag of about 12 months from the beginning of a slowdown, thereby mitigating the impact of a slide in revenue.

SPH’s current share price indicates that the market has already factored in an earnings decline of around 15% for its media business. The sharpest contractions recorded in the past decade were 15.4% in FY Aug01 and 15.9% in FY Aug02. Nevertheless, the stable income stream from its investments in retail malls should help limit the negative earnings swing. We estimate rental revenue from Paragon and Clementi Mall to contribute about 15% to group revenue by FY Aug13.

SPH has a track record of paying dividends out of its deep reserves, even during periods of crises. Our DPS forecasts of 25 cents for FY Aug12 and FY Aug13 represent a payout of 112-116%, which is still a relatively low ratio compared to that in 2000-04.

Action & Recommendation

Following our last update on SPH in July, we are lowering our FY Aug12/13 earnings forecasts by a further 5-13%. This makes us one of the most conservative brokers on the Street with respect to this stock. Potential land acquisitions for retail property projects using its war chest of $1.3b in cash is a key stock catalyst. But the economic uncertainty posed by the European debt crisis remains a big risk. We upgrade our rating to BUY from HOLD with a target price of $4.17.