Singapore Press Holdings Ltd - Recovery underway

SPH's 3Q09 net profit was S$126.7m (-5% yoy), beating consensus estimates and 20% above our forecast. The outperformance came mainly from higher-than-expected operating revenue of S$327.1m (-5% yoy) and lower-than-expected operating expenses thanks to lower-than-expected newsprint costs. We continue to believe that ad demand is close to a bottom and project a faster recovery for print ads in FY10-11. We have raised our FY09-11 earnings estimates by 1-6% on the better-than-expected media earnings. Maintain Outperform with a higher sum-of-the-parts target price of S$3.62 (from S$3.52) following our earnings upgrade.

3Q09 operating income declined marginally to $131.3m but was up 40% qoq mainly due to the stepped-up revenue recognition for Sky@Eleven. An investment gain of $17.6m was recorded, compared to $25.7m in 1Q08. Net profit was 5% lower yoy at S$126.7m; Overall, a decent set of results with the fall in print ad revenue being cushioned by strong development profits and cost containment measures.

Core publishing business could have bottomed as operating profit in 3Q09 posted a sharp rebound qoq. Display ad revenue had reversed the downtrend and the risk of more cutbacks on the budgets of SPH’s top ad revenue contributors (telcos, property) seems low given that government’s pump-priming measures such as the jobs credit scheme are taking effect. Government ads spending also support the recovery of print ad revenue.

Sky@Eleven remains on track for TOP in CY2010. To date, 56% of the project’s revenue has been recognised. Property development margin was consistently strong at 71.7%. At Paragon, rental revenue declined 5.4% qoq despite the addition of 40,000 sqf of space in the quarter. We suspect renewal rental rates could have fallen or replacement of commercial tenants could have led to disruptions.

Group investible fund remained at $0.9b. Net loss from investment to-date narrowed to $16.1m from $33.8m as at Feb-09, as dividend and interest income offset the loss in value of the externally managed funds during 1Q09. SPH’s cash war chest has strengthened to S$380m (+18% from Feb), forming 44.4% of investible fund. Its net cash position places it in a sweet spot to engage in opportunistic investment activities.

Our SOTP target price is remains unchanged at $3.90. SPH looks on track to deliver our full year revenue and earnings estimates. With the divestment of the loss-making TOM Outdoor Media Group in May, the Group is focused on positioning itself for the next growth phase which in our opinion may include property development. Prospective PER of 11.3x for its core publishing business does not look expensive. Maintain BUY.

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