Paragon was revalued on 3rd July 2009 at S$1.98b, 1% below its value in 2008 and 24% higher than our previous assumption in our SOTP valuation. Stronger-than-expected take-up of space at new shopping malls along the prime Orchard shopping belt and impending opening of the Integrated Resorts could be key reasons for minimal value diminution.

Newspaper ads volume, particularly for Display property and mobile phone, had been firm in June. Print ad revenue had only declined 12.7% to-date; with only two months left to fiscal year-end, we maintain our view that that print ad revenue should decline less than previously expected (-25%). As such, we have raised FY09F and FY10F revenues by 6.3% and 6.5%.

According to data from URA, resale units have recently been transacted at between $1140psf and $1355psf in June, compared to the average launch price of $960psf, hence minimizing concerns about potential defaults upon Sky@Eleven’s completion next year. At Paragon, pressure on rental rates upon renewal may be softer based on better-than-expected committed occupancy at high-end retail malls, with rental rates higher than that at Paragon ($30-40psf); ION Orchard (94%; at $20-$80psf) and Mandarin Gallery (85%; at $50-70psf).

SPH’s 3QFY09 result is due on 13th Jul. We are estimating yoy decline in operating profit of around 17%. However, on revised assumptions of a 15% decline in print ad revenue for FY09F and average newsprint cost US$550/ton, our FY09F and FY10F net profit estimates have been raised by 9.5% and 10.5%, respectively.

Our SOTP target price has been raised to $3.90 from $3.46 as we peg the Paragon to market value and raise the value of its core media business due to revised assumptions. Our new target price implies potential upside of 25% from the current price. The stock still offers a prospective dividend yield of 7.8% and normal yield of 6.3% in FY11, excluding development profits. Maintain Buy.