Singapore Press Holdings (SPH) - CGS-CIMB Research 2021-01-05: Needs A Boost From Non-Media Segments


Singapore Press Holdings (SPH) - Needs A Boost From Non-Media Segments

  • SPH's media business may see improvement in the near term due to the impact of COVID-19 in FY20, but structural decline risks remain.
  • SPH's property business to recover and partially offset the weakness from media.
  • SPH's share price is trading at 0.5x P/BV (-2 s.d. from 5-year mean). Reiterate HOLD.

Improving business sentiment to boost SPH's ad revenue from a low base

  • SPH (SGX:T39)’s media business reported an EBIT loss of S$9.4m in FY20 due to one-off retrenchment costs (S$16.6m) and a ~33% y-o-y decline in newspaper print ad revenue. Given the low base effect in FY20 as well as improving business sentiment, and barring the resurgence of COVID-19 cases, we think its media business could see improvement in the near term.
  • However, in the long term, we continue to see structural declines in the industry as advertisers allocate more of their budgets to digital and social media platforms. While total circulation has been growing in the past 3 years, ad revenue, which contributed more than 60% of total media revenue, has been declining.

Retail business to improve in FY21 although rental reversion remains under pressure

  • Barring another major lockdown, we believe SPH's retail business which had been mired with temporary closures and rental rebates due to COVID-19, should improve in FY21. While we expect its retail malls to continue to experience rental pressure due to lack of tourists and weak operating environment, overall revenue performance in FY21F should be better versus FY20.
  • Some 25% of SPH REIT (SGX:SK6U)’s (~65% owned by SPH) leases by rental income will be up for renewal in FY21F. We expect its retail malls to depend on local traffic in the near term which should improve going forward as the office crowd returns gradually and social distancing measures ease with more people vaccinated.

PBSA performance should remain relatively stable

  • SPH has been acquiring student accommodation in the UK aggressively since Sep 2018, with its latest and largest acquisition done in Dec 2019 when it acquired Student Castle for S$740m. To date, the portfolio amounts to ~S$1.4bn and has a total number of 7,723 beds.
  • Despite travel restrictions, SPH achieved 88% of the targeted revenue in AY20/21 (Sep 2020 to mid-2021) and bookings will continue to be made into early-2021 to cater to students arriving later due to visa delays and whose postgraduate courses start in Jan 2021.
  • Having been through the first lockdowns and hassles of returning home and to universities, we think the latest lockdown in the UK may have a smaller impact (compared to the lockdowns in 2020) on demand for student accommodation. Recall that rental refunds of £4.5m for PBSA in FY20 were at the lower end of the expected £4m-8m range and 20% of this amount was in the form of credits.

Steady performance from SPH's aged-care business

  • Similar to PBSA, the aged-care business is relatively stable. Despite the stiffer competition from public and not-for-profit nursing homes, Orange Valley’s bed occupancy rate increased from 75% in Sep 2019 to 80% in Aug 2020 as it caters to a different market.
  • As for its aged care business in Japan which SPH acquired in Mar 2020, master lessees have continued to pay rent in full on a timely basis, while underlying portfolio occupancy has remained in the high 90%.

Woodleigh Residences – among the top 5 best-selling condominiums in Aug 2020

  • Meanwhile, SPH’s Woodleigh Residences was one of the top 5 best-selling condominium projects in Aug 2020 and it also recently won the Best Integrated Development at the PropertyGuru Asia Property Awards 2020. Despite COVID-19, more than 140 units of the project were sold since 18 Jul 2020, bringing total units sold to 376 units, or 56% of total units, as at Oct 2020.
  • Sales have been progressing well. Based on our recent checks recently, about 60% of the units have been sold. We expect demand for property to continue to be strong given the low interest rate environment.

SPH's 1QFY21 earnings preview

  • SPH is likely to release its 1QFY21 (Sep 2020 to Nov 2020) operational updates this month. Excluding COVID-19-related grants, we expect stronger q-o-q results driven by the low base effect in 4QFY20 due to COVID-19, seasonally stronger ad spend in 1Q driven by events such as Black Friday and Cyber Monday, more students returning to UK and lesser rental rebates given to tenants in its retail malls.
  • On a y-o-y basis, while financial performance of the property business should be stronger due to acquisitions (Student Castle, Westfield Marion, aged-care assets in Japan), we believe this would be offset by the weaker performance from media due to COVID-19 and structural decline.

Reiterate HOLD on SPH

  • We retain our HOLD call on SPH as we think there are limited catalysts in the near term, while most of the negative news has been priced in at 0.5x P/BV. At our conservative dividend assumption of 4 to 6 cents/share in FY21-23F, SPH offers 3- 5% dividend yield.
  • See SPH Share Price; SPH Target Price; SPH Analyst Reports; SPH Dividend History; SPH Announcements; SPH Latest News.
  • If we ascribe zero value to SPH's media business (51% of total revenue in FY20), our SOP target price which has imputed in a 30% holding discount, will be reduced by S$0.15, i.e. a 12% downside from the current SPH share price.
  • Upside risks include better-than-expected ad spend and value unlocking of its portfolio, while downside risks include worse-than-expected ad spend and a resurgence of new COVID-19 cases that will also affect the occupancy of its PBSA.

EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.100 SAME 1.100