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%.

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.

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.

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.

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.

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.

NGOH Yi Sin CIMB Research | http://research.itradecimb.com/ 2017-03-19

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