Singapore Press Holdings (SPH) - DBS Vickers 2015-09-03: Anticipating Lower AD Spend.

SINGAPORE PRESS HLDGS LTD P39.SI

ANTICIPATING LOWER AD SPEND

We turn cautious on SPH and downgrade our recommendation to FULLY VALUED, from HOLD.
We believe print ad growth could be negatively impacted on the back of slower GDP growth.
We lowered our Adex growth assumptions on expectations of reduced advertising and marketing expenditure arising from an expected cut back in consumer spending and poorer business environment.

We believe Adex is likely to be impacted negatively in a less positive macroeconomic setting. Based on historical trends, Adex is relatively correlated to GDP. Rising corporate and consumer interest rates, tepid export demand, a higher-cost environment, and weak consumer sentiment could prompt cut backs in consumer spending. This could lead to slowing demand for products and services, and lower advertising expenditure by companies.
Notwithstanding its strong balance sheet, we believe there could be downside to DPS in FY16F/17F on the back of lower earnings, which could reduce the investment appeal for this counter.

We reduce our FY16F/FY17F earnings forecast by -11% each to S$263m/S$264m as we impute -5% Adex growth for FY16F. This is to factor for a lower GDP growth environment and less positive Adex outlook.

Our target price of S$3.51 is based on sum-of-parts valuation. We value SPH's core newspaper and magazine operations at S$1.43/share based on discounted cash flow model.
SPH’s 70% stake in SPH REIT is valued based on our target price of S$0.99.
These two parts are added to the estimated value of Seletar Mall, net cash and investments, to derive our TP.

As our view is premised on declining Adex, a strong economic recovery and pick-up in consumption will lead to Adex improvement, which is a key risk to our negative view.

Alfie YEO | Andy SIM CFA | http://www.dbsvickers.com/ DBS Securities 2015-09-03

FULLY VALUED Downgrade HOLD 3.51 Down 3.98