CITI Singapore Morning Pack, Thursday, September 09, 2010

Singapore Press (SPRM.SI): Buy: Company Visit; Attractive Despite Strong YTD Performance

Singapore Press (SPRM.SI -1L -S$4.18)

Market Cap S$M 6,663.36

Target: S$4.40

· Maintain Buy - After our meeting with mgmt, we remain upbeat on the stock and remain comfortable with our EPS forecast. Although stock has outperformed STI by c.10% YTD, we continue to like it as a defensive play and for its high yield.

· Print advert trend - Mgmt noted display ads' buoyant trend - consistent with Singapore's strong GDP growth - and is the key driver. Classified growth remains moderate while circulation stays lackluster. Despite concerns core earnings will slow with softer economic growth in 2011, we have already factored conservative growth assumptions for FY 2011-12E (2-3% YoY growth).

· Managing margins - Higher turnover, however, will be partially offset by increments in newsprint cost (US$529/ton in 3Q10 vs. current spot US$640/ton and US$612 in 4Q09) and reinstatement of variable bonuses. The rise in news print costs should be continual but gradual; SPH has locked in costs till Mar 11.

· Improving cash flow - The negative working capital position should reverse. In addition to the c.20% cash proceeds from its Sky@eleven project as at end May 10, receipt of another 65% following attainment of TOP will reduce trade receivables (3Q10: S$664mn vs. FY09: S$434mn) by year end, with remaining 15% to be received a year later. SPH has consistently positive free cashflow

· Retail Malls to be focus of Property segment - Mgmt noted focus will be in the commercial space, with less emphasis on residential projects. The preference for Retail Malls stem from the better margins involved and group's experience with Paragon and Clementi Mall. This is consistent with SPH's belief it can invest and capitalize on Singapore's population growth in the long term. Recently, SPH's bid for a mixed residential-commercial site in Bedok Town was 17.5% short of highest bid (S$789mn) tendered by 50-50 JV between Capitaland and CapitaMalls Asia.

StarHub: FULLY VALUED S$2.52; Bloomberg: STH SP

Perils on both ends;
Price Target : 12-Month S$ 2.20
By: Sachin Mittal +65 6398 7950

· We attended StarHub’s conference yesterday and came out assured about its preparedness in the consumer market.

· However, StarHub needs to be cautious of new entrants in the low-end SME market. In the high-end corporate market, StarHub may not have all the ingredients of the recipe yet.

· SME and corporate market account for an estimated 15%-20% of group earnings. Continuing with 20 cents DPS may turn group equity negative in 2012F. Maintain Fully Valued.

New products, services plus hubbing advantage. StarHub would launch a new device “StarHub Wireless Home Gateway” which would provide wireless connectivity for all Internet devices at home. The Company intends to launch “Internet TV” with content from its pay TV, so that its program can be viewed over PC or TV anywhere in the world. StarHub would also introduce
a new portal with latest multiplayer online games including F1 racing. In our view, StarHub’s content-experience and hubbing is a huge competitive advantage. SME and corporate market is a bigger challenge. StarHub will maintain its existing fibre network of over 2000 km in addition to the new National Broadband Network. The company plans to offer managed services through
alliances with various IT vendors as opposed to in-house IT competency of SingTel.

While StarHub has access to only 800 buildings compared to over 20K buildings in Singapore, we can safely assume that StarHub would have covered the bigger customers first. In our view, many SME customers would incline towards lower pricing where smaller players like M1 and LGA have an advantage, as they do not have existing margins to protect. In the high-end corporate market, customers prefer managed services involving IT and global connectivity. Our talks with industry players suggest corporate customers prefer vendors with strong in-house IT competency, as independent IT vendors typically work with multiple operators to maximize their returns.

(Document link: Singapore Research)

Shanghai May Levy 1.5% Property Tax on May 15, Hexun Reports

By Bloomberg News

May 13 (Bloomberg) -- Shanghai’s municipal government may levy a tax of up to 1.5 percent of the value of properties on May 15, Hexun.com reported on its Web site today, citing a developer who declined to reveal his name.

Several Shanghai-based developers have received “hints” that new policies are poised to be issued to cap property prices, and have begun to sell their properties, the Chinese-language news website reported.

--Luo Jun in Shanghai. Editor: Eugene Tang.

1 trillion dollar bailout for Europe

As what CNBC has shown, the bailout package for Europe is about 1 trillion! Does that sound familiar? I remember vaguely about the 700 billion bailout package about 1 year ago in USA and it has lead the market-dollar rally till now.

Anyway, this bailout package has caused the dollar to plunge massively to around S$1.377 which is near the initial FX rate I changed.

Currently with the US markets opened, it was up at 400+ points but right now at 9.49pm, it has only around 260+ points gained for Dow. Quite an exciting night though for the market as we embrace this bailout package..

History was created yesterday

If you stayed and see the US market yesterday, you would have witness history. Probably first time ever, dow plunged to a all time low of -980+ points before bouncing back. Not even lehman's collapse caused such a big fall.

Apparently there's alot of speculation that it was due to error trading. In fact, we can see that if it was an error trade, apparently most of the traders have their trade all computerized nicely to see trigger to domino effect. Once it broke past a certain level, every computer starts to sell, from A to Z! I guess not even any circuit breaker in NYSE could have prevented that auto trigger of selling though.

After this mega mistake, we could learn some good experience on this. I'm very sure alot of panic selling was triggered in various affected counters like P&G, Accenture. Accenture was the scary one though, dropping from $40 to $0.01! If i was holding or trading that, my heart will also fly out!

Recently my work project has cut over, thus I didn't have much time to update the daily market news from our local market, but nevertheless, our market cannot survive this massive plunge and has broken down back to the 2800+ range.

Do take note that we took about 3-4 months to even reach to this stage of closing in to 3000 mark. It took only less than a week to break it down? This feeling of depression seems to be kicking back into the markets, like in the month of end January and close to end 2008.

While the trigger was about Greece again, do take note that the news have mentioned Greece for like the 4th time at least over the past 7-8 months? I vaguely remembered the PIGS were mentioned in Oct 2009 and it caused quite a correction back then. Second time came in around Jan 2010 and in Mar 2010 as well if I remember correctly. This time round, the europe markets has really reacted strongly to the news from Greece and alot of thinking can be derived from this episode.

Greece is only like 1% of GDP in the whole of Europe, why would it cause so much damage to the markets? One being as a country, having a country to so call declare bankrupt is a big thing already. Next, the social unrest that it caused is limitless. Look at the rising riots that are happening in Europe due to this issue. My take is it is going to be a repeat of what the US govt did back then in 2008. Time to bail out the bankrupt countries by printing more money. Look at the Euro; it has plunged to a all time low to the USD. Apparently, most people have flee back to Gold and the dollar for safety havens.

I myself have bought some USD and have an average dollar of S$1.38 against US$1. Right now it is exchanging at around S$1.40 and I am predicting it to hit at least S$1.42 before some pullback occurs. If Europe is not solving this issue, I can see USD strengthening again while investors flee the euro zone.

Daily market summary for 23-Apr-2010

The STI Index closed at 2988.49, up by 7.8 points

Top Actives

Name Volume Last Change $ EuNetworks 116040000 0.02 +0.0050 Ellipsiz 86336000 0.16 +0.03 Sunning Tech 65618000 0.275 +0.02 GoldenAgr 63226000 0.61 +0.01 China Hongx 32960000 0.145 -0.01 BRC Asia 31379000 0.14 +0.0050 Jadason 30670000 0.11 +0.015 Yangzijiang 29142000 1.43 -0.05 $ CarrierNet 28675000 0.01 0.0 AsiaFoodP 26410000 0.68 +0.045