SPH - results preview: Improving Advertising Revenue

Improving advertising spending. Singapore Press Holdings (SPH) will be releasing its 4QFY09 (June ? August) results on 12 October. Our pagecounts of The Straits Times point to an 11% yoy contraction in SPH's advertising revenue (AR) in 4QFY09 (3QFY09 page-counts: -18% yoy). SPH earlier reported newspaper AR contraction of 23% in 3QFY09 (2QFY09: - 20.1% yoy; 1QFY09: -9.3%), higher than the 18% indicated by our pagecount monitor and ACNielsen's -14%. We are expecting a newspaper AR contraction of 15% for 4QFY09. While AR is still below the level a year ago, it has been making a comeback since April. Monthly page-counts suggest AR contraction is narrowing with only 8% yoy contraction, much smaller than 20+% yoy contraction six months ago.

Investment income could surprise on the upside, in view of better financial market conditions. Investment gain in 3QFY09 was S$17.6m (- 31.4% yoy) compared with a loss of S$0.1m in 2QFY09. As of end-May 09, SPH had a S$0.9b investible fund of which 44.4% was cash, 28.7% in equities, 14.2% in bonds and 12.7% in investment funds.

We estimate final DPS of 13-16 cents. DPS of 13 cents being our worst-case scenario premised on a full-year payout ratio of 86% of earnings and 16 cents is our best-case scenario premised on a payout ratio of 98%. Including the interim DPS of 7 cents that has already been paid, full-year DPS would be 20 cents and 23 cents respectively (FY08 DPS: 27 cents). Historically, SPH's net DPS ranges from 80% to 100% of EPS. We have adjusted our FY09 DPS estimate to 21.5 cents, the average of our worst- and best-case scenarios.

SPH is a proxy to an improving domestic economy as well as a yield play. We believe Singapore's integrated resorts ? Marina Bay Sands and Resorts World@Sentosa, scheduled for phased opening in 1Q10 ? will have a multiplier impact on consumer spending and hence, advertising spending. This should benefit SPH. At current share price, the stock offers attractive FY10 and FY11 annual dividend yields of 6.5%.

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