Singapore Press Holdings (SPH), which publishes The Business Times, slid 1.9 per cent to $4.08, after Citigroup analyst Jason Brueschke downgraded his rating on the stock to 'hold' from 'buy' in a research note. He also lowered his target price to $4.50 from $5.30, citing a likely increase in newsprint costs and a slowing economy that could hurt SPH's advertising revenue and investment income.
BUY S$4.18 STI : 2,926.84
Price Target : 12-month S$ 5.75 (Prev S$ 5.65)
14 July 2008 DBS VICKERS SECURITIES
Story:
3Q08 earnings were in line with expectations, as EBIT rose by 25% yoy to S$140m on revenue growth of 20% yoy to S$344m. YTD, EBIT is up by 25% yoy to S$388m on top line growth of 18% yoy to S$955m. PBT contribution from the Group’s publishing business was flat in 3Q08 due to higher staff costs but for 9M08, is up by
11% yoy, driven by an 8% increase in display and classified revenues. PBT contribution from the property segment grew by 155% yoy to S$103m as at 9M08, as the development of Sky@Eleven progressed. Meanwhile, treasury and investments saw a substantial decline of 71% yoy but is still ahead of our conservative forecasts.
Point:
The Group is on track to meet our full year EBIT growth projection of 23% and whilst we are expecting a slow down in the next 1 or 2 quarters, we remain positive on Singapore’s longer-term growth (DBS Economics is forecasting 6.8% GDP growth in 2009). Even in the event that we are overly optimistic, SPH’s earnings are highly
defensive given its monopoly on the publishing sector in Singapore and ownership of a premium retail asset like Paragon. The additional contribution from Sky@Eleven
over the next 2 years will also help buffer any earnings downside risk for the Group.
Relevance:
We continue to like SPH for its attractive valuation and as a defensive stock, backed by a net yield of >7.5% (premised on 90% payout of EBIT; in line with
last 6 years), and re-iterate our BUY call. We have adjusted our sum-of-the-parts target price to S$5.75, as we have raised our forward valuation for Paragon to S$2.1bn (cap rate of 4.5%). The latest valuation for Paragon is S$2bn.
Full Report from DBS VICKERS SECURITIES
The portfolio edged up in the technical rebound mood of the overall market.
STI closed at 2926.84, up 46.39 points or 1.6%. The return from this portfolio is 0.66% only due to weakness of Areit and SPH.
