Singapore Press Holdings (SPH) - UOB Kay Hian 2020-03-09: Attractive Yield, New Defensive Assets; Upgrade To BUY

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

Singapore Press Holdings (SPH) - Attractive Yield, New Defensive Assets; Upgrade To BUY

  • We upgrade SPH (SGX:T39) to BUY with a higher target price of S$2.25 following the recent drop in share price giving an attractive yield of 5.8% which is at 1.5SD above its 10-year mean.
  • SPH’s additions of defensive assets continue to gather pace and increase its recurring income base. The recent purchases of Japanese and Canadian assets tap on to the ageing trend in developed markets which have seen resilient demand even in economic downturns.
  • SPH’s defensive play could prove to be valuable amid the wider market sell-down.



WHAT’S NEW


Singapore Press Holdings (SPH) had announced two acquisitions of aged care assets recently.

  • The first acquisition was in Japan with five properties (3 in Hokkaido, 1 in Nara, 1 in Tokyo) for S$65.8m. The second was in Canada (5 in Ontario, 1 in Saskatchewan) for S$244.5m. The total addition to the group’s facilities is 365 beds (Japan) and 717 suites (Canada).

Adds on to recurring income base.

  • The addition of aged care assets strengthens SPH recurring income as well as complements its aged care operations (Orange Valley) in Singapore. The latest acquisitions add a real estate component as opposed to Orange Valley build-own-lease model. SPH’s acquisition of Japanese assets is in partnership with real estate asset manager, Bridge C Capital.

Defensive play with attractive yield at current levels.

  • The Japanese assets have a cap rate of close to 5% on average, while that for the portfolio could range 5-6%. At current share price levels, SPH provides an attractive dividend yield of 5.8% with a growing base of recurring income from defensive assets - aged care and student accommodation - which are more resilient to economic downturns.

Ageing demographics points to growing resilience.

  • Hokkaido’s seniors of above 70 years old makes up about 20% of its population. Canada has one of the highest average life expectancies globally, at 82 years, while Ontario also faces an ageing population. According to projections from Statistics Canada, the proportion of population aged 65 and above in Ontario will increase from 16.9% (2018) to 21.2-26.1% in 2043, a CAGR of 2.1-2.6% in aged population growth. A larger aged population has also largely translated to a higher capture rate for senior housing.
  • According to the Canada Mortgage and Housing Corp (CMHC), the preference for senior housing has increased since 2015, capturing 5.5% of total population above 75 in 2019 (2015: 5.2%). Average vacancy rate has dipped 1.5ppt while rental rates have increased by a 4-year CAGR of 3.5%.

Supply side dynamics in Ontario could also be in SPH’s asset favour.

  • For retirement homes, competition is currently the most intense in Ottawa, according to CMHC, with 114 beds per 1,000 seniors above 75 years old. However, SPH’s The Bradley is the only of its acquired assets located in the Ottawa region. The asset also has an income support of C$3.8m over the next 24 months.
  • The government support for long-term care beds has also had limited new supply over the years, rising only 0.8% from 2011 to 2018. Overall, the Canadian assets acquired are expected to add S$7.7m in earnings for SPH annually.


STOCK IMPACT


Recent ramp-up may suggest more to come.

  • The group’s expansion into aged care business overseas leverages its operator knowledge at Orange Valley, with asset ownership offering some downside protection. The latest acquisitions may suggest more additions in cash-yielding assets in defensive sectors. The group’s student accommodation assets are also of a sizeable value of close to S$1.4b.

COVID-19 advertising may offer short-term temporary relief.

  • On the media side, increased health advisory advertisements from COVID-19 in the local newspapers could help to provide some temporary relief to the decline in SPH’s media business. Our page count of Feb 20 Straits Times suggests that the pace of decline has diminished from the double-digit percentage seen in 2019. Excluding one-off costs, media constituted about 20% of group operating profits in 1QFY20, compared with 42% in 1QFY19.


EARNINGS REVISION/RISK

  • We increase our FY20-22 net profit forecasts by 1-6%, boosted by the new aged care assets, assuming only one quarter of contribution from the new assets for FY20.


VALUATION/RECOMMENDATION



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/ 2020-03-09
SGX Stock Analyst Report BUY UPGRADE HOLD 2.25 UP 2.220



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