Analysts remain neutral on SPH's media restructuring

CGS-CIMB analyst Eing Kar Mei has kept her “add” call on SPH with an unchanged target price of $2.09, as she deems the exercise as a positive move for the group.

To her, the move, despite the short-term pain, provides a long-term gain, as the exercise will remove the drag from the media business, which reported a profit before tax (PBT) loss of $9.7 million in the 1HFY2021.

It also removes the Newspaper and Printing Presses Act (NPPA), which will give SPH greater financial flexibility to tailor its capital and shareholding structure to seize growth opportunities.

The exercise will also free up resources for the group to focus on its other businesses.

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The target price of $2.09, says Eing, is pegged to a 20% holding discount, pending the completion of the exercise.

“If we exclude the media business from our sum-of-the-parts (SOP) calculations, reduce SPH REIT’s stake from 66% to 65% (to take into account the SPH REIT units to be given to CLG), a larger outstanding share base (to take into account the SPH shares to be given to CLG), and reduce cash balances by $80 million, our SOP target price will be $1.94,” writes Eing.

“Assuming the assumptions from point above but with only 10% and no holding discount, our SOP target price will be $2.18 and $2.43 respectively,” she adds.

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DBS analyst Alfie Yeo has maintained “hold” on SPH with a higher target price of $1.64 from $1.32 previously, based on the revalued net asset value (RNAV) of SPH’s properties.

“We value SPH's properties based on 30% discount to RNAV on properties worth $4.44, other businesses and investments worth about 75 cents and net debt at about $2.80,” writes Yeo.

To Yeo, SPH, which currently trades at 0.9 times FY2022 price-to-book (P/B), is expected to register positive return on equity (ROE) of about 3% to 4% once its media business is no longer part of the group.

“This is however backend loaded, as we expect weak earnings for media to persist in FY2021 along with one-off restructuring costs. Earnings improvement is anticipated from 2HFY2022,” he says.

That said, Yeo’s earnings forecast is below consensus, reflecting operating profit largely from the property segment, he writes.

Like CGS-CIMB’s Eing, the move is positive in the longer term without the earnings drag from the media business.

“Earnings volatility should stabilise once earnings contribution is driven by properties, which is more stable in nature,” Yeo notes.

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“Our forecast and outlook for the stock is premised on the successful completion of the restructuring in FY2022. Failure to secure sufficient votes at the extraordinary general meeting (EGM) to enable it to carry out the restructuring would lead to the continued recognition of the media business beyond FY2022, derailing our forecast and outlook for the stock,” he adds.

OCBC’s research team has also kept their “hold” call with an unchanged fair value estimate of $1.92.

“While a modest recovery path for the company’s key businesses is the base case ahead, supported by vaccine rollouts progress and global economic recovery, near term share price volatility is expected pending developments on the strategic review, which has lifted share price and raised optimism for potential value unlocking initiatives,” writes the team.

Echoing the sentiments of the analysts from CGS-CIMB and DBS, the OCBC team also views the move as positive for the group in the longer term.

“We are maintaining our fair value of $1.92 pending completion of the deal, which implies a smaller holding company discount of -7% to the estimated post-restructuring reduced NAV of $2.08/share (estimated to fall -6.6% post proposed restructuring), in view of the lifting of uncertainties surrounding the media business,” adds the team.

UOB Kay Hian analyst Lucas Teng has maintained “buy” on SPH with an unchanged SOTP-based target price of $1.85.

To Teng, the deconsolidation of SPH’s media business would allow for the group’s shareholding restrictions to be lifted, and for the removal of the media segment losses that’re dragging the group’s overall figures down.

“After restructuring, the group’s NAV/share is about $2.08, with the current price at a discount of 27%,” he writes.

“Any adjustments (post-restructuring) would lower our target price slightly to $1.79, given a change in: a) SPH REIT’s holdings, b) cash, and c) higher share base (from SPH shares given to the CLG),” he adds.

As at 12.04pm, shares in SPH are trading 4 cents higher or 2.6% up at $1.56, or 0.75 times FY2022, according to CGS-CIMB’s estimates.