We are revising our advertising revenue growth assumption to -20.0% from 3.0% in view of thenegative GDP outlook for 2009. Historically, advertising revenue growth underperformed GDPgrowth in a down market. In 2002, advertising revenue declined 19.8% yoy. Our new projectionshows newspaper and magazine revenue declining 14.8% while overall revenue is estimated tofall by 1.6% in FY09F, mitigated by the contribution from Sky@Eleven. At 11.8x forward PER,SPH is now trading at the trough valuation of 11.8x. Our implied valuation of the core mediabusiness shows a trading PER of 10.6x, which is below the historical low PER of 11.8x.

We reduced our staff cost estimates for FY09F by 29% following the cost cutting measuresinstituted by the management and given that employees’ variable wage component is about 10%.Our net profit estimate in FY09F is reduced to $425.3m, representing a yoy decline of 2.8%. Theimpact of changes to earnings estimates are lower DPS of 23.8 cts for FY09F and 22.2 cts forFY10F, translating to a yield of 7.6% and 7.1%, respectively. The DPS estimates are based on a90% payout from both media and development income.

Free cash flow of $408m expected in FY09F should support the dividend payout of $380m. SPHis in a net cash position of $280m as at Aug’08, with $1.1b in investible fund. An additional$150m three-year loan obtained recently may be deployed for investments in overseas mediajoint ventures.

SPH remains one of our most defensive pick as the company rewards shareholders withdividends even in bad times. Assuming 90% payout of recurring earnings, we are projectingnormal yield of 5.2% (excluding payout from Sky@Eleven), which depicts are more sustainabledividend profile as contribution from property development will cease from FY11.Lower core media business valuation impacts SOTP target priceOur SOTP target price has been reduced to $4.48, mainly due to the lower DCF valuation of thecore media business of $2.96 based on a 7.4% WACC and 2% terminal growth rate. We furtherassumed that the investments will be marked down by 10% due to the uncertain equity marketcondition. Our valuation assumption of $2b for Paragon remains intact as we believe that theopening of competing up-market shopping malls along Orchard Road in 2009 may raise theprofile of surrounding properties and draw new crowds, and hence valuation will find a support.There is a 41% price upside to the new target price. Maintain Buy.