Falling revenue… Our checks in the industry have indicated that Singapore Press Holding's (SPH) print advertising took a heavy hit in Nov/ Dec period despite the last ditch advertising efforts by retailers to bring the year end to a less dismal sales closing. The lack of major events in Singapore in the first two months along with the dismal job market in the private sector did not help. As such, we expect adex and classified revenues to be negatively impacted. We initially expected print revenue to register a 3.6% YoY fall for FY09F but now knock it down to a 6.7% YoY drop to factor in the cratering economy. Circulation numbers should remain flattish for FY09 as we do not expect heavy subscription cancellations.

…But controlling costs. As shown from its historical operating data, SPH has three consecutive quarters of falling newsprint consumption while charge out prices (Exhibit 2 & 3) have been going up. With the volumous usage for the US presidential elections over, charge prices have thankfully started to tail off since the start of the year. Unfortunately, as SPH historically buys its raw materials on a 6 months forward basis, we are expecting high newsprint costs from Jan - Jun 2009. On the staffing front, SPH's forge into new media businesses have been moderated by aggressive wage cuts announced yesterday.

Mark-To-Market losses might continue. We believe that SPH has not changed its equity and bond portfolios with its external fund managers since the last quarter. With the volatile equity and bond market, our initialassumptions of a return to a positive accretion from its investments are likely invalid in view of potential MTM losses overwhelming dividend income that it will receive from its investments.

Silver lining: Paragon and Sky@Eleven. Thankfully, SPH's two property plays keep its head above water against a drowning property market. Paragon continues to sustain almost full occupancy even after its S$45m upgrade to add 29,000 sqft of space and Sky@Eleven's progressive contribution will buffer its earnings.

Attractive valuation. SPH fell 23% since the downgrade in our last report. While we have lowered our SOTP fair value to S$2.84 (prev: S$3.13) as we align its valuation peg with its peers, we are upgrading SPH to BUY based on attractive valuations with dividend yield at ~9%. We are also impressed by the swift action taken to contain staffing cost, its highest expense component.