SPH - Advertising spending bounces back from depressed level

Advertising spending is bouncing back from a depressed level. This is evidenced in our page counts of The Straits Times. The Saturday papers, the barometer of advertising spending, point to the beginning of a recovery in advertising spending. Saturday issues typically more than double the average weekday’s pagination as advertisers prefer to advertise on Saturdays. As evidenced in the table overleaf, advertising spending hit a depressed level with The Straits Times’ Saturday issues falling to around 190 pages in March compared with 270 pages a year ago and 250 pages six months ago. Pagination bottomed in April and has since rebounded to above 210 pages in May, albeit The Great Singapore Sales started two weeks ago.

Nevertheless, monthly data from ACNielsen also points to SPH’s advertising revenue (AR) contraction getting smaller from -18% yoy in March to -9% yoy in April. A similar trend is emerging in our page counts of The Straits Times, which suggest SPH’s AR contraction has improved from -22% yoy in March to -16% yoy in April.

SPH offers an attractive risk-reward proposition. As high-beta cyclicals have rallied strongly, the defensives now offer a relatively more attractive risk- reward proposition and should start to attract investor interest. SPH, trading at a P/B of 2.6x, offers a 36% upside to its long-term P/B mean valuation of 3.6x. The stock will likely be favoured by investors starting to search for value among the laggard defensives that have not rallied as much as the cyclicals. In addition, SPH offers annual dividend yield of 7-8%. Maintain BUY and our target price of S$3.90, which is based on our sum-of-the-parts (SOTP) valuation of S$3.94/share.

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