March 20, 2017

Since our downgrade from HOLD to FULLY VALUED in April 2016, the stock has fallen by more than 12%, on the back of weak adex spend and GDP growth.

We are now less pessimistic on SPH as we believe valuations have largely priced in negatives and GDP acceleration from 2% in 2016 to 2.8% in 2017. The stock is now trading at 22.7x forward PE with dividend yield decent at 5.1%.

Positives from the possibility of SPH monetising its M1 stake, alongside Keppel T&T and Axiata Group Bhd. SPH holds 13.38% stake in M1 valued at S$274m (4% of SPH’s market cap) or 15.7 Scts per SPH share.

Our target price of S$3.39 is based on sum-of-parts valuation: SPH’s core newspaper and magazine operations at S$1.44/share based on discounted cash flow model, SPH’s property business at S$1.38, and net cash and investments of SS$0.57.

Upgrade to HOLD, TP raised to S$3.39 on better GDP outlook. —DBS

SPH closed at S$3.550 today.