SPH

CIMB on 19 June 2012

WE raise our EPS (earnings per share) marginally on property rental adjustments and our SOP target price after rolling one year forward. We also raise DPS on less conservative payout assumptions. Upgrade from "neutral" to "outperform". We see catalysts from higher-than-expected ad growth.

Retail malls for growth: With a stable and mature print business, we expect SPH's growth to come increasingly from its retail malls. Revenue CAGR for SPH's gem asset, Paragon, had been an impressive 8.3 per cent over 2006-11, outstripping that for comparable assets under retail S-Reits. We expect similar success for its Clementi Mall during its first renewal cycle; with the success extending to its Sengkang Mall on completion.

Stable media business to underpin cashflows: We expect its newspaper and magazine segment to remain dominant and underpin SPH's cashflows. We expect a seasonally stronger Q3 FY12, as strong property, auto and telco display ads mitigate lukewarm GSS ad demand and weaker recruit and classifieds.

Pseudo retail Reit: With typical payouts of more than 90 per cent, we believe SPH is akin to a retail Reit. Against retail Reits, SPH stands out for its stronger balance sheet and thus limited cash-call risks, in our view. Q2 12 net gearing is low at 35 per cent with property asset values booked at historical costs less depreciation. With a growing property arm, we do not dismiss the possibility of a spin-off or sale of assets to a Reit over the longer term.

Cheaper alternative: SPH has underperformed retail S-Reits YTD and during the recent flight to safety. Yields are now 6.4 per cent versus an average of 6.1 per cent for retail S-Reits. We see SPH as a cheaper alternative for investors seeking exposure to retail S-Reits.
OUTPERFORM