Singapore Press Holdings - CIMB Research 2017-03-19: Potential sale of M1 stake?

Singapore Press Holdings - CIMB Research 2017-03-19: Potential sale of M1 stake? SINGAPORE PRESS HLDGS LTD T39.SI

Singapore Press Holdings - Potential sale of M1 stake?

  • Axiata, Keppel & SPH announced that they are jointly undertaking a strategic review of their stakes in M1.
  • At M1’s current share price of S$2.19, SPH could receive proceeds of S$0.17/share for sale of its 13.4% stake.
  • Injection of Seletar Mall into SPH REIT in the pipeline, with potential special dividend as the key re-rating catalyst, in our view.
  • Media industry still facing structural challenges and economic headwinds.
  • Upgrade to Hold with higher SOP-based target price of S$3.36. The stock currently offers FY17-19F dividend yields of 4.8-5.1%.

Axiata, Keppel & SPH undertaking strategic review of stakes in M1 

  • A Bloomberg News article titled “M1’s Shareholders Said to Explore Sale of Singaporean Operator” on 17 Mar reported that SPH, Axiata and Keppel T&T are undertaking a strategic review of their respective 13.4%, 28.5% and 19.2% shareholdings in M1
  • The sale of the 61.1% combined stake would be more attractive to potential buyers that want a controlling stake, in our view.

Potential for special dividends? 

  • At M1’s current share price of S$2.19, SPH could receive c.S$273m (S$0.17/share) proceeds for its 13.4% stake. We estimate that a portion of these proceeds will go to special dividends, given its low net gearing ratio of 21% at end-1QFY17. 
  • Recall that the M1 stake is a major component of SPH’s equities investment, which formed ~40% of the group’s investible fund (generates 4-5% annual yield). Depending on M1’s selling price, SPH could see a one-off boost to net income from investments and accretion to TP.

Injection of Seletar Mall into SPH REIT could be another catalyst 

  • SPH’s 70%-owned Seletar Mall is due for its first renewal cycle by end-2017, from which we expect to see positive rental reversion from the current S$14psf pm. With right-of first-refusal granted to SPH REIT, we believe a divestment of the asset is on the cards.
  • Recall that SPH paid out special DPS of 18Scts in FY13 upon the establishment of SPH REIT. Our FY17-19F EPS forecasts have yet to factor in 
    1. potential loss of earnings stream from divestment of these non-core assets, and 
    2. any special dividends.

Awaiting broader ad market recovery 

  • Its 1QFY17 results announcement showed that SPH’s media revenue continued to decline, across display, classified and magazines ads. 
  • While the easing of property cooling measures announced on 10 Mar might have caused slight improvement in the number of property-related advertorials over the weekend, we think that it remains to be seen if demand for newspaper ads has turned the corner. 
  • Rightsizing efforts to contain costs are still underway, even after one-off charges of S$15.9m incurred in 1QFY17.

Upgrade from Reduce to Hold 

  • Our SOP-based target price is lifted marginally to S$3.36 on the back of higher valuation for Seletar Mall. This prompts our rating upgrade from Reduce to Hold. 
  • We expect share price support from SPH’s 4.8-5.1% dividend yield in FY17-19F, with potential upside from special dividends. 
  • Favourable/unfavourable changes in business sentiment that weigh on demand for newspaper ads pose upside/downside risks to our call. This note marks a change in analyst coverage.

SOTP Valuation of SPH - CIMB Research 20170319

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-03-19
CIMB Research SGX Stock Analyst Report HOLD Upgrade REDUCE 3.36 Up 3.310