Singapore Press Holdings - Attractive value

Over the past six months, consensus FY09E and FY10E EPS for SPH has been revised down by 18-24%. During this period, SPH has underperformed the market by 50%. As a result, the stocks‘ P/E premium to the market has declined from +58% to -17% currently.

According to the CS Page Monitor, it appears that the YoY contraction in job ad demand is bottoming. Plus, management indicated during our recent meeting that there are signs that newspaper ad demand is bottoming. Management also indicated that newsprint prices have fallen further to the US$500 levels.

We have adjusted our earnings forecasts mainly to reflect potentially lower newsprint costs and higher investment income. We have also raised our sum-of-the-parts target price by 12% to S$3.36. This represents 14% upside from current levels. In addition, the stock is expected to generate a dividend yield of 9%.

We believe that in addition to the weak newspaper earnings outlook, the market has also discounted the potential cut in dividends following the company‘s interim dividend cut. We are upgrading SPH from Neutral to OUTPERFORM.

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