Singapore Press Holdings (SPH) - UOB Kay Hian 2020-06-24: Undemanding Valuation But Mixed Outlook


Singapore Press Holdings (SPH) - Undemanding Valuation But Mixed Outlook

  • SPH's share price has dropped since its exclusion from the MSCI and STI. Valuation appears undemanding at 0.6x book value and 6% 2021 dividend yield, but some uncertainties remain over the extent of impact on the media division and luxury segment of its REIT asset.
  • We are slightly more upbeat on the group’s student accommodation assets. Catalysts include value-unlocking of assets.
  • Maintain HOLD and target price of S$1.52.
  • Entry price: S$1.30.

SPH Share Price at undemanding levels but uncertainties remain.

  • SPH (SGX:T39) was recently removed from the Straits Times Index (STI), largely factoring in its price weakness. The company’s 3QFY20 results will likely bear the brunt of the stay-home measures due to the COVID-19 outbreak while uncertainties remain with the media business as the global trend of decline for print advertising is expected to continue even with an economic recovery, according to a recent report from ad agency GroupM. However, SPH's current share price looks undemanding, trading at 0.6x book value.

University student deferrals not dire; in-person teaching for new academic year should bode well for accommodations.

  • According to Universities College Admissions Service (UCAS), only 31,380 (+2% y-o-y) applicants had deferred at least one of their university application choice as of early-June, and this may not be as stark as many might expect. UCAS estimates that the best case scenario is about 2% fewer “home students” will start in the academic year (AY20/21) in the fall compared to last year, while the most pessimistic outcome is likely to be at around a 10% decline.
  • In addition, preparations for in-person teaching are still underway for the majority of universities. According to a study by Universities UK, 97% of universities surveyed confirmed that they will provide in-person teaching at the start of AY20/21, while adhering to public health guidance. This will likely bode well for student accommodation assets, with the continuation of in-school activities.

Slower recovery from Paragon; gap between SPH REIT and SPH.

  • The Phase 2 re-opening has largely seen an improved footfall across retail malls, with SPH REIT (SGX:SK6U)’s suburban malls likely to gain traction. However, Paragon which contributes approximately 60% of revenue for SPH REIT, may see a slower recovery from luxury retail, with the prolonged disruption to tourism.
  • Thus far, SPH REIT had already provided total rebates averaging 2.3 months. Weathering further storms will be dependent on its ability to mitigate headwinds, and given the REIT’s low gearing ratio of 29% as of 1HFY20, this will likely put it in a better position to do so. We note that SPH's share price performance ytd of -38% is much weaker vs SPH REIT share price’s -17%, despite SPH’s 66% ownership in SPH REIT.

Dip in print media expected.

  • According to GroupM, the decline in print media advertisement for 2020 is likely to amount to a 25% dip in revenue y-o-y, declining at an accelerated rate compared to prior years. This could lead to a cycle of disinvestment in content and advertiser support subsequently, unless further investment in digital marketing solutions and content offerings are utilised. We have currently factored in a 20% decline in ad revenue for SPH in FY20.

Unlocking value remains a key catalyst.

  • The group continues to review its non-core businesses and investments. We had previously noted the group owns a sizeable industrial property in Genting Lane, which in our view could provide an opportunity for consolidation of operations to further unlock value from its assets.

Maintain HOLD and SOTP-based target price of S$1.52.

  • While valuations appear undemanding, better clarity from the impact on SPH's property assets could help re-rate the stock. For the student accommodation assets, much will depend on the take-up rate in July as the deadline for universities’ acceptance was recently concluded.
  • Suggest entry price is S$1.30.
  • See SPH Share Price; SPH Target Price; SPH Analyst Reports; SPH Dividend History; SPH Announcements; SPH Latest News.
  • Share price catalyst:
    • Pick-up in retail malls and international students for PBSA.
    • Slower-than-expected decline in the media business.
    • Unlocking of value from capital recycling.

Lucas Teng UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-06-24
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.52 SAME 1.52