SPH - DBS Research 2017-03-20: Less pessimistic outlook

SPH - DBS Vickers 2017-03-20: Less pessimistic outlook SINGAPORE PRESS HLDGS LTD T39.SI

SPH - Less pessimistic outlook

  • Share price corrected by more than 12% since our downgrade.
  • 2017 GDP forecast revised to 2.8% from 1.9% last year.
  • Downside supported by more positive GDP outlook. 
  • Upgrade to HOLD, TP revised to S$3.39.



Upgrade to HOLD, TP raised to S$3.39 on better GDP outlook.

  • Since our downgrade from HOLD to FULLY VALUED in April 2016, the stock has fallen by more than 12% to S$3.53 currently. 
  • Results had been lackluster on the back of weak adex spend and GDP growth. This has also led to DPS cut from 20 Scts in FY15 to 18 Scts in FY16. 
  • We are now less pessimistic on SPH as we believe valuations have largely priced in negatives and see some positives from the possibility of SPH monetising its M1 stake; and GDP acceleration from 2% in 2016 to 2.8% in 2017. 
  • In addition, the recent relaxation of Total Debt Servicing Ratio (TDSR) framework to allow borrowers to borrow against their properties for additional cash could support private consumption and expenditure in the overall economy. 
  • The stock is now trading at 22.7x forward PE with dividend yield decent at 5.1%.


Jointly appoints advisor review stake in M1. 

  • On Friday 17 March, SPH announced that that the substantial shareholders of M1, comprising SPH, Keppel T&T and Axiata Group Bhd, have appointed Morgan Stanley Asia to conduct a strategic review of their stakes in M1. 
  • SPH holds 13.38% stake in M1 valued at S$274m (4% of SPH’s market cap) or 15.7 Scts per SPH share.


Valuation


TP of S$3.39 based on sum-of-parts. 

  • Our target price of S$3.39 is based on sum-of-parts valuation. 
  • We value SPH's core newspaper and magazine operations at S$1.44/share based on discounted cash flow model, SPH’s property business at S$1.38, and net cash and investments of SS$0.57 to derive our TP.


Key Risks to Our View

  • Adex reversal, disposal of investment stake and expectations of special dividends. A strong economic recovery and pick-up in consumption will lead to adex improvement, which is a key risk to our view. 
  • Sale of its investments, such as M1, could also lead to expectations of higher special DPS




Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2017-03-20
DBS Vickers SGX Stock Analyst Report HOLD Upgrade FULLY VALUED 3.390 Up 3.320



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