UOB KH on SPH

28 Feb 2006
Singapore Press Holdings : Jan and Feb 06 Page-Counts Confirm Strong
Advertising Spending : BUY
Strong advertising spending in January and February. Our page-counts of The
Straits Times for January and February (combined to even out the monthly
fluctuations due to Chinese New Year) indicate a strong advertising volume
growth of 9.8% yoy (SPH's reported 1QFY06: +2.2% yoy). Actual advertising
spending growth could be higher than the figure implied by our page-counts as
SPH recently raised the ad rates for four of its newspapers. From Jan 06, the ad
rates for The Sunday Times and the weekend issues of The Straits Times were
raised by 3%. Separately, from Nov 05, the ad rates for Lianhe WanBao and Shin
Min Daily News were raised by 10% for weekday and 3% for weekend issues.
Uptrend to continue. The current advertising spending upturn started in
November last year. We had previously highlighted (our Blue Top dated 23 Jan
06) Saturday issues of The Straits Times were getting thicker with 250+ pages
compared to 220-230 pages previously. This high page-count has continued into
January and February (Figure 1). With the proposed Progress Package in the
recent Budget (with various benefits including the workforce bonus, growth
dividends and the National Service Bonus) and a rise in consumer confidence
(SPH consumer confidence Index: 327 in 1Q06 vs 266 in 4Q05 and 294 in 1Q05),
consumer spending is poised to increase further.
Earnings forecasts raised. We raise our projected advertising revenue (AR)
growth for SPH for FY06 and FY07 from 5% to 7%. Accordingly, we raise our
FY06, FY07 and FY08 net profit forecasts by 3.4%, 5.4% and 5.6% respectively to
S$410.8m, S$446.0m and S$466.0m. SPH had earlier reported an AR growth of
2.2% for 1QFY06 (Sep-Nov 05). This low growth was partially due to the
divestment of Streats in Dec 04, resulting in FY05 and 1QFY06 being compared
against corresponding periods that had a high base. From Jan 06, Streats will no
longer be a distortion factor. Also worth noting, ACNielsen has under-estimated
SPH's AR growth in the last four quarters

Target price raised from S$5.00 to S$5.40 (SOP
valuation: S$5.36). We believe newsflow on SPH will
increasingly become more positive. Traditionally, share
price has a strong relationship to its AR growth (Figure
3). The stock's high dividend yield of 4.5% to 5.2%
projected for FY06 to FY08 provides support to share
price and dividend yield in FY06 could be higher if SPH
is successful in selling the Times Industrial Building.