Singapore Press Holdings (SPH) - UOB Kay Hian 2020-01-06: Sizeable Asset Base Now But Media Risk Remains

SINGAPORE PRESS HLDGS LTD (SGX:T39) | SGinvestors.io SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings (SPH) - Sizeable Asset Base Now But Media Risk Remains

  • SINGAPORE PRESS HOLDINGS (SPH, SGX:T39) has recently acquired new student accommodation assets in the UK, bringing total AUM to a sizeable S$1.4b. The more-premium acquired assets have a slightly lower yield, compared with the previous accommodation assets purchased. While asset quality looks relatively assured, the decline in its media business does not appear to be abating.
  • Maintain HOLD with a higher SOTP-based target price. See SPH Target Price.
  • Entry price: S$2.00.



WHAT’S NEW


Acquired student accommodation assets for £448m (S$807m) in Dec 19, a boost to portfolio size.

  • Singapore Press Holdings (SPH) acquired from Student Castle Investments five operational purpose-built student accommodation (PBSA) assets with a capacity of 1,662 beds, and two developmental assets with 721 beds. This brings its total portfolio to over 7,726 beds worth a sizeable S$1.4b. See SPH Analyst Reports; SPH Latest News.


Premium assets.

  • The operational assets enjoy strong tenure rates of close to full occupancy with an average age of 2.6 years. About 84% of the assets’ beds are in close proximity to top-ranked and Russell Group universities, including the University of Oxford and University of Cambridge. Room rates also indicate its premium nature, with studio rates at £250-290/week vs SPH’s previously acquired assets’ £160-200/week.


Stable income from developmental assets.

  • Development assets are expected to be operational for the academic year 2020/21 (starting Sep 20). Both assets carry a fixed monthly coupon payment during the development stage, followed by rental guarantee and income support arrangements during the first three years of operation.
  • The rental guarantee of £5.2m is held in escrow, payable to vendor on fulfilment of certain rental conditions. The income support is an escrow sum of £10m, of which £5.4m is during the construction period with the remaining amount entitled for two academic years: 2021/22 (starting Sep 21) and 2022/23 (starting Sep 22).


STOCK IMPACT



Slightly lower net initial yield of 4.8-5.6% but assets relatively well assured.

  • The recent PBSA portfolio purchased is generally lower-yielding compared to SPH’s initial purchases: Mayflower portfolio (6.3%, Sep 18), Privilege portfolio (5.2-5.5%, Apr 19). Assets in Durham and York have a low supply pipeline, according to Cushman and Wakefield, with York being a relatively immature market.
  • The York asset has a 100% occupancy rate since opening in 2015, according to Cushman and Wakefield, along with nominated rooms with the University of York until Sep 21. Although across the portfolio, risk remains with higher-supply pipeline regions of Brighton and Edinburgh.


Media business not out of the woods yet.

  • According to our page count of the Straits Times for 1QFY20, total page count was down 11.7% y-o-y, a similar rate of decline as in the previous quarter. The three segments (Recruit, Classifieds, Display) saw a 25%, 22% and 9% y-o-y drop in page counts respectively and does not appear to be abating yet.
  • SPH will release its 1QFY20 results on 13 Jan 20. See SPH Announcements.


EARNINGS REVISION/RISK

  • Increase our earnings forecasts by 8-14%, accounting for earnings of the acquired PBSA assets as well as higher interest expense from the S$300m issuance of perpetuals in Nov 19.


VALUATION/RECOMMENDATION

  • Maintain HOLD with a higher SOTP-based target price as we factor in a higher value for UK PBSA, offset by the perpetuals and additional debt raised for the purchase. See SPH Target Price.
  • SPH is currently trading at a yield of 5.1%, close to its 10-year long-term mean of 5.0%. See SPH Share Price; SPH Dividend History.
  • Entry price is S$2.00.


SHARE PRICE CATALYST

  • Acquisition of defensive assets.
  • Slower-than-expected decline in the media business.





Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-01-06
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.30 UP 2.250



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