With a near-monopoly on a major industry sector in Singapore, SPH’s revenue and earnings are directly affected by the country’s economic conditions. However, while the company is near the average in terms of revenue and earnings volatility out of all Straits Times Index (FSSTI) constituent companies, its stock price is one of the least volatile (ie, SPH has a low beta). Since 1 October 1986, there have been 34 periods when the share price has either outperformed or underperformed the FSSTI by at least 15%. Twenty-eight (82.4%) of those periods were due primarily to the low beta of SPH’s stock.
We forecasts the FSSTI to decline over the next six months to 1,932. We expect SPH’s stock to continue to have a low beta and expect it to outperform in a falling stock-market environment. We initiate coverage of the company with a 2 (Outperform) rating and a six-month target price of S$2.84 based on a quantitative analysis.
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