CGS-CIMB analysts Eing Kar Mei and Lim Siew Khee have raised their target price for Singapore Press Holdings (SPH) from $2.09 to $2.19, reflecting its “higher investment portfolio value”.
In a June 17 research note, the analysts undertook a deep dive on what’s next for SPH following its proposal to spin-off its media business.
See: SPH to structure media business into not-for-profit entity, SPH to cut loose former core media business with $351.3 million send-off package and Investors take umbrage with SPH’s restructure by selling down
The way Eing and Lim see it, sans media business, SPH is an integrated real-estate manager with a portfolio of assets worth some $6.7 billion, out of which about $5.3 billion are in retail malls in Singapore and Australia, student accommodation assets in UK and Germany, aged care assets in Singapore and Japan, and partial stales in the Woodleigh mixed development as well as a data centre in Singapore.
The remainder of SPH’s portfolio comes from asset management, digital investments and other listed investments. The analysts point out that income from the portfolio has been stable, with SPH’s FY2020 ended August ebit entirely supported by its real estate portfolio as it offset losses from its media business.
The analysts emphasize that SPH is not a property developer, given its much lower exposure to development assets. In addition, they do not expect property development to be a yearly contributor to SPH’s revenue.
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As such, in terms of valuations, they believe SPH shouldn’t be benchmarked to other developers. They note that SPH is currently trading at a discount of around 12% to net asset value post-restructuring. In comparison, Singapore property developers currently trade at a discount between 15%-60% to book value.
In terms of its non-core assets, estimated to be worth around $1.2 billion, Eing and Lim believe these are “ripe for capital recycling”. “If SPH sells all of these assets, it could double its PBSA (purpose built student accommodation) portfolio, raising our FY2022-2023 net profit forecasts by c.30% and dividend yields to 4.5-5% on the stock,” they remark.
Following the spin-off of its media business, SPH will no longer be bound by the Newspaper and Printing Presses Act, meaning that interested parties will be able to acquire a substantial stake (more than 5%) in the company.
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To that end, Eing and Lim are confident there will be investors will be interested in SPH given the quality of its portfolio. “Who would be interested in SPH without media? We believe, practically anyone, such as strategic investors/real estate funds that already have a real estate portfolio or investors who want exposure to the real estate management business,” they say.
The analysts note real estate funds/companies that have similar exposures to SPH include ARA Asset Management, Brookfield, Mapletree Investments, Metro Holdings and Savills Investment Management.
They also speculate that SPH could potentially be a good fit for Keppel Corp - whether through the latter taking a substantial stake in SPH; a merger; or other avenues - noting that both groups had the same chairman, Lee Boon Yang, from 2011 to April 2021, and shared joint ownership and legacy investments.
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Eing and Lim are less convinced on whether SPH may be privatised, noting that a substantial shareholder acquiring more than a 30% stake in SPH would not only trigger a mandatory general offer of SPH but could also potentially trigger a general offer for SPH REIT, depending on the decision of the Singapore Securities Industry Council.
“This indicates that a potential buyer would need to fork out c.$5.3 billion (based on one time P/BV and SPH’s 1HFY2021 total equity) to privatise both companies, which we believe could serve as a stumbling block,” they comment.
In the event that SPH shareholders vote against spinning off the media business, Eing and Lim believe SPH will continue building out its real estate portfolio while trying to revive its media business, though the continued drag on earnings and dividend payouts will likely have a negative impact on share price.
The analysts reiterate their ‘add’ rating on SPH, with its higher target price of $2.19 due to the higher value ascribed to its asset manager (including the value of Prime US REIT manager); and iFAST, which now is based on their target price instead of market value.
As at 4.30pm, shares in SPH are trading flat at $1.80.
