singapore press holdings ltd
Post on 25-Feb-2022
12 Views
Preview:
TRANSCRIPT
Equity Research 2 August 2021
1
Company update
Singapore Press Holdings Ltd Singapore | Communication Services
Research Team
Rating HOLD (as at 2 August 2021)
Last Close SGD 1.88
Fair Value SGD 1.92
Value unlocking proposed
• SPH’s strategic review has concluded with the
proposal for Keppel Corp to acquire all shares of SPH
post restructuring of the media business in an
estimated $3.4bn privatisation offer.
• SPH shareholders to receive total proposed
consideration of SGD2.099/share, which comprises of
cash SGD0.668, 0.596 Keppel REIT units and 0.782
SPHREIT units per SPH share.
• What’s next: EGM to be called in August/September.
SPH to eventually delist and privatise under this plan.
• Our thoughts: Deal looks fair in providing a balanced
outcome for value unlocking for shareholders while
avoiding a situation where prime assets may be
cherry-picked. The proposal implies a 39.9% premium
to the stock’s closing price of SGD1.5/sh prior to the
company’s 30th March strategic review announced,
or a 11.6% premium to the last close on 30th July.
Investment thesis SPH is a leading media organization in Asia, which is in
the process of innovating digitally to transform its media
business to meet changing readership and advertisers’
needs. To diversify its income stream beyond media
which is seeing structural headwinds, the group has
made moves beyond its core business to diversify its
portfolio, including its acquisition of student
accommodation assets overseas, positioning in the
aged care market in Singapore (Orange Valley Nursing
Homes) with plans for expansion in Japan with Bridge C
Capital and acquisition of M1 limited (with Keppel Corp)
in April 2019 to leverage on synergies and explore new
areas of growth. 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.
Security Information
Price Performance
Financial summary
Prior results highlights
Source: Bloomberg, Company, Internal estimates
(financial year ending 31 August). NM: not meaningful.
SPH SP
Market Cap (SGD bn)
Daily turnover (SGD m) 24.3
100%
1,607
Top Shareholder Vanguard Group 2.54%
Ticker
3.0
Free Float
Shares Outstanding (m)
0
1000
2000
3000
4000
0
1
2
3
4
5
Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21
SPH SP Equity STI Index (RHS)
SGD mn 2020 2021E 2022E
Revenue 866 910 929
Operating profit 110 205 222
PATMI -84 159 160
Earnings/sh (S$) -0.07 0.10 0.10
Dividend/sh (S$) 0.03 0.06 0.06
Financial year ends 31-August
SGD mn 1HFY20 1HFY21 %
Operating revenue 471.4 417.1 -12%
Other operating income 43.2 8.9 388%
Total revenue 480.3 460.3 -4%
Total costs 377.6 340.5 -10%
Operating profit 102.7 119.8 17%
FV change on investment
properties10.5 -8.4 nm
Share of results of
associates and JVs2.5 4.5 81%
Net income from
investments7.6 20.9 176%
Profit before tax 123.3 136.8 11%
PATMI 77.6 97.9 26%
Equity Research 2 August 2021
2
Investment summary • Trading halt was called this morning pre-market
opening - SPH, SPHREIT, Keppel Corp and KREIT are on
trading halt today, with the announcement that
Keppel Corp has proposed to acquire all shares of
SPH post restructuring of the media business in a
$3.4bn privatisation offer.
• For details, please refer to the following links:
News - Singapore Press Holdings (sph.com.sg);
https://investor.sph.com.sg/newsroom/20210802_09003
6_T39_RF9CQIJEXQ9ONNLB.2.pdf;
https://investor.sph.com.sg/newsroom/20210802_09003
6_T39_RF9CQIJEXQ9ONNLB.3.pdf.
• Transaction strikes a balance between maximising
value and minimizing disruption for shareholders –
Following SPH’s announcement on 6th May 2021
involving the restructuring of the media business and
transfer of SPH Media to a public company limited by
guarantee (CLG) for a nominal sum, the board
carried out a comprehensive review of various
strategic options (including 1) maintain status quo for
SPH ex-media; 2) partial sale/monetization of certain
assets or; 3) privatization offer for SPH), which has
concluded with the preferred solution of privatizing
the whole company in order to maximise a better
valuation outcome for SPH shareholders.
• Value unlocking for SPH shareholders has
materialised via the privatisation offer from Keppel
post media restructuring, supporting our previous
“Hold” advice. As per SPH, more than 20 parties
approached for its ex-media business. In our view, the
deal looks fair in both unlocking value for SPH
shareholders and avoiding a situation where prime
assets may be cherry-picked, while the receipt of
SPHREIT and KREIT units will allow shareholders to still
participate in the recovery prospects of the retail and
commercial real estate segments at attractive
dividend yields (historical average yields ~4% range).
• SPH shareholders will receive a combination of cash,
KREIT and SPHREIT shares under the proposal:
SGD0.668/sh, 0.596 Keppel REIT units/sh (valued at
SGD0.715/sh) and 0.782 SPHREIT units/sh (valued at
SGD0.716/share from a distribution in-specie by SPH).
This implies total equity value of SGD3.4bn for SPH and
total consideration of ~SGD2.099/share (+39.9%
premium to closing price of SGD1.5/sh before the
strategic review was announced 30th March 2021).
• Timeline expected ahead – An EGM will be held in
August/September to approve the media business
restructuring. Thereafter another EGM relating to the
Prior 1H FY2021 results highlights
Source: Company
Equity Research 2 August 2021
3
non-media business acquisition proposed by Keppel
Corp will be held in October/November 2021 to
approve the distribution in specie of SPHREIT units and
scheme meeting for the acquisition of SPH. Deal
completion of the proposed transaction is expected
to be completed December 2021.
• SPH is expected to eventually delist and privatise
should the transaction move forward successfully,
subject to holder, regulatory and legal approvals.
ESG updates • SPH‘s ESG performance is above the global sector
median and reflects the firm’s strong governance
structure (majority independent board, separate
CEO and Chairman roles which support
management oversight) and efforts on sustainable
sourcing initiatives relative to peers (raw material
sourcing). Our fair value is based on sum of parts
valuation and has incorporated some positive
expectations of potential value unlocking initiatives
as the company executes on its strategic
transformation plan. On other positives observed, the
company has adopted best industry practices in
outlining the scope of control over access of personal
data, including amendments and deletion of records
and has in place various initiatives to address
increasingly stringent regulations on the topic of data
security. There is also evidence of a formal
anonymous whistleblower system with legal
protection, which contributes to the firm’s overall
governance rating.
Potential catalysts • Recovery in growth prospects supported by faster
than expected Covid-19 containment and
economic recovery. Ramp up in digital circulation
and rebound in advertisement revenue. Dividends
increase. Potential value unlocking of its non-
media/property assets, potential restructuring of its
media business (under the Newspaper & Printing
Presses Act, Chapter 206 of Singapore, Minister’s
approval is required for any arrangement that
involves aggregate shares more than 5%).
Investment risks • Larger-than-expected decline in its traditional print
media and advertising business. Operational issues
in the PBSA and aged care portfolios. Significant
slowdown in sales at its property projects. Diseases
outbreak, macro-economic deterioration.
Dividends cut. Impairment risks for investment
properties. Disappointments in value unlocking
initiatives could result in share price pressure, given
recent burst of optimism on the back of the start of
a strategic review announced by the company.
Equity Research 2 August 2021
4
Valuation analysis
Source: Bloomberg
Price/Earnings chart Price/book chart
Source: Bloomberg Source: Bloomberg
2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E
Media
SINGAPORE PRESS HOLDINGS LTD (SPH SP) 20.4 23.5 0.9 1.0 3.2 3.8 2.8 4.2
TBS HOLDINGS INC (9401 JP) 14.3 13.6 0.4 0.4 1.9 1.9 3.0 3.4
NINE ENTERTAINMENT CO HOLDIN (NEC AU) 18.4 16.9 2.5 2.3 3.6 4.1 14.1 14.2
STAR MEDIA GROUP BHD (STAR MK) NA NA 0.4 0.4 2.3 2.5 (4.4) (2.0)
Stocks involved in proposed transaction
SPH REIT (SPHREIT SP) 19.1 18.3 1.0 1.0 5.7 5.7 5.2 5.5
KEPPEL REIT (KREIT SP) 26.7 23.1 0.9 0.9 4.9 5.0 3.5 3.7
KEPPEL CORP LTD (KEP SP) 14.9 12.1 0.9 0.9 3.4 3.8 6.1 7.1
Price/Earnings Price/Book Dividend Yield (%) ROE (%)
0
5
10
15
20
25
30
Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21
PE Avg +2SD
+1SD -1SD -2SD
0.0
0.4
0.8
1.2
1.6
2.0
2.4
Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21
PB Avg +2SD +1SD -1SD -2SD
Equity Research 2 August 2021
9
Company overview (as of end FY2020)
Company description
SPH's core business is publishing of newspapers, magazines and books in both print and digital editions. It also
owns other digital products, online classifieds, radio stations and outdoor media. On the property front, SPH
owns ~70% in a real estate investment trust called SPH REIT which comprises Paragon, a premier upscale retail
mall and medical suite/office property in Orchard Road, The Clementi Mall, a mid-market suburban mall and
The Rail Mall, a stretch of shopping and dining outlets along Upper Bukit Timah Road. SPH REIT also holds 85%
equity stake in Figtree Grove, a freehold sub-regional shopping centre in Wollongong, New South Wales,
Australia. SPH also owns and operates The Seletar Mall. It is developing a new commercial cum residential
site consisting of The Woodleigh Residences and The Woodleigh Mall. It is also an owner, manager and
developer of a portfolio of Purpose-Built Student Accommodation (PBSA) in the United Kingdom and
Germany. It currently operates two distinctive brands, Student Castle and Capitol Students. SPH is in the aged
care sector in Singapore and Japan, and owns Orange Valley, one of Singapore's largest private nursing
homes. SPH also runs a regional events arm and a chain of Buzz retail outlets, and has also invested in the
education business.
FY20 revenue, by segments FY20 revenue, by geography
FY20 net income Dividend per share (SGD)
Source: Company (financial year ends August), Bloomberg
0
200
400
600
800
1,000
1,200
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
SGD m
Net Income
Equity Research 2 August 2021
10
Company financials Income statement
Profitability ratios
Credit ratios
Source: Company, Bloomberg
In Millions of SGD except Per Share FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020
Revenue 1,124.3 1,032.5 982.6 959.3 865.7
- Cost of Rev enue — — — — —
Gross Profit — — — — —
+ Other Operating Income 28.8 19.5 23.1 18.4 89.0
- Operating Expenses 816.7 815.3 755.2 741.5 779.3
Operating Income or Losses 336.4 236.7 250.5 236.2 175.3
- Interest Expense 31.3 31.3 37.5 49.3 65.1
- Foreign Exchange Losses (Gains) -0.5 2.0 -1.7 -2.1 -1.6
- Net Non-Operating Losses (Gains) -55.4 -228.1 -154.3 -109.3 197.2
Pretax Income 361.0 431.5 368.9 298.3 -85.3
- Income Tax Expense (Benefit) 54.9 36.3 47.6 38.7 27.2
Income Before XO Items 306.1 395.2 321.3 259.5 -112.5
- Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0
- Minority/Non Controlling Interests (Credits) 40.8 45.1 42.9 46.3 -28.8
Net Income/Net Profit (Losses) 265.3 350.1 278.4 213.2 -83.7
Net Inc Avail to Common Shareholders 265.3 350.1 278.4 213.2 -83.7
Abnormal Losses (Gains) 0.1 -137.8 -124.5 -58.8 262.2
Tax Effect on Abnormal Items 4.5 25.1 24.1 13.8 -42.6
Normalized Income 270.0 237.4 178.0 168.1 135.9
Basic Earnings per Share 0.2 0.2 0.2 0.1 -0.1
Basic Weighted Av g Shares 1,614.4 1,615.1 1,615.3 1,613.8 1,609.4
Diluted EPS Before Abnormal Items 0.2 0.1 0.1 0.1 0.1
Diluted EPS Before XO Items 0.2 0.2 0.2 0.1 -0.1
Diluted EPS 0.2 0.2 0.2 0.1 -0.1
Diluted Weighted Av g Shares 1,621.5 1,620.5 1,621.4 1,619.8 1,616.7
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020
Returns
Return on Common Equity 7.44 9.99 8.05 6.16 -2.46
Return on Assets 4.42 5.81 4.54 3.22 -1.05
Return on Capital 5.96 7.52 6.14 4.81 -0.77
Return on Inv ested Capital 5.01 3.76 3.73 3.24 1.48
Margins
Operating Margin 29.92 22.93 25.49 24.62 20.25
Incremental Operating Margin -97.36 -108.56 — -61.23 -65.05
Pretax Margin 32.11 41.79 37.54 31.10 -9.85
Income before XO Margin 27.23 38.28 32.70 27.06 -13.00
Net Income Margin 23.60 33.91 28.33 22.23 -9.67
Net Income to Common Margin 23.60 33.91 28.33 22.23 -9.67
Additional
Effectiv e Tax Rate 15.21 8.41 12.91 12.99 —
Dv d Payout Ratio 109.55 69.19 98.61 98.28 —
Sustainable Growth Rate -0.71 3.08 0.11 0.11 —
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020
Total Debt/EBIT 3.86 6.35 6.42 8.71 19.83
Net Debt/EBIT 1.73 3.50 4.50 6.18 14.90
EBIT to Interest Expense 10.76 7.56 6.68 4.79 2.69
Long-Term Debt/Total Assets 20.15 8.65 21.33 23.16 24.76
Net Debt/Equity 13.69 19.60 26.87 30.99 52.76
Important disclosures
ANALYST DECLARATION:
The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the listed entity, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.
The analyst(s) who wrote this report does not hold any financial interests in the listed entity. The analyst’s/analysts’ connected persons do not hold any financial interests in the listed entity.
The analyst(s) does not receive compensation directly or indirectly related to the inclusion of specific recommendations or views in this report. The reporting line of the analyst(s) is separate from and independent of the business solicitation or marketing departments of Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) Group.
The analyst(s) or his/her associate confirms that he or she does not serve as directors or officers of the listed entity, and the listed entity or other third parties have not provided or agreed to provide any compensation or other benefits to the analyst(s) in connection with this report.
DISCLAIMER FOR RESEARCH REPORT
This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without the written consent of OCBC Investment Research Private Limited (“OIR” or “we”). This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein or to participate in any particular trading or investment strategy. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. In the event that you choose not to seek advice from a financial adviser, you should consider whether investment in securities and the securities mentioned herein is suitable for you. Oversea-Chinese Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited (“BOS”), OIR, OCBC Securities Private Limited (“OSPL”) and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. There may be conflicts of interest between OCBC Bank, BOS, OIR, OSPL or other members of the OCBC Group and any of the persons or entities mentioned in this report of which OIR and its analyst(s) are not aware due to OCBC Bank’s Chinese Wall arrangement.
The information provided herein may contain projections or other forward looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance.
Privileged / confidential information may be contained in this report. If you are not the addressee indicated in the message enclosing the report (or responsible for delivery of the message to such person), you may not copy or deliver the message and/or report to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Bank, BOS, OIR, OSPL and their respective connected and associated corporations shall be understood as neither given nor endorsed.
RATINGS AND RECOMMENDATIONS:
- OIR’s technical comments and recommendations are short-term and trading oriented.
- OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.
- As a guide, OIR’s BUY rating indicates a total expected returns (excluding dividends) in excess of 10% based on the current price; a HOLD rating indicates total expected returns (excluding dividends) within +10% and -5%; a SELL rating indicates total expected returns (excluding dividends) less than -5%. For REITs and Business Trusts, total expected returns including dividends apply.
- For companies with market capitalisation of S$150m and below, OIR’s BUY rating indicates a total expected returns (excluding dividends) in excess of 30%; a HOLD rating indicates total expected returns (excluding dividends) within a +/-30% range; a SELL rating indicates total expected returns (excluding dividends) less than -30%. For REITs and Business Trusts, total expected returns including dividends apply.
Co.Reg.no.: 198301152E
Published by OCBC Investment Research Private Limited
top related