Singapore Press Holdings (SPH) - UOB Kay Hian 2021-03-30: Expecting A Property Uplift, Upgrade To BUY

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SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings (SPH) - Expecting A Property Uplift, Upgrade To BUY

• Property assets in SPH have seen improved prospects. SPH REIT’s 1HFY21 DPU was S$0.0244 (+45% y-o-y) and we see potential for SPH's dividends to be reinstated to a larger extent. Student accommodation assets could also see improved demand. Together, these two property assets form a sizeable 93% of revalued assets in our SOTP valuation for SPH, which remains discounted by the market.
• Upgrade SPH to BUY with a 43% higher target price of S$1.74, implying 16% upside.

Dividends on the mend.

• SPH REIT (SGX:SK6U)’s DPU amounted to S$0.0244 in 1HFY21 (+45% y-o-y). 2QFY21 DPU of S$0.0124 was up (+313% y-o-y, +3.3% q-o-q). We opine that retail operations have largely stabilised, barring the effects from a lack of tourism on Paragon. This would allow for dividends to recover to a larger extent in the parent company, SPH (SGX:T39).
• Assuming an annualised DPU of S$0.048 for SPH REIT, we estimate that this translates to almost S$0.055 of dividends for SPH, which is a healthy yield of 3.7% at current SPH share price (excluding the effects from the media, student accommodation and other business). To recap, SPH’s dividend had taken a hit in FY20, amounting to only S$0.025 per share, as cash conservation was a priority for the group.

Student applications for UK universities see a high, supported by local students.

• Applications for UK universities saw an 8.4% increase y-o-y in the recent Jan 21 cycle deadline, a stark increase compared with the previous year’s 1.2% growth rate. This was supported by a strong 11.6% y-o-y growth in local student applicants. Local students have seen favourable demographic trends, with a larger population size of under-18s, while the tough job market is also a factor in the high application rates. This bodes well for SPH’s student accomodation assets, which number almost 8,000 beds.

Except the EU, foreign student applicants see continual growth from key markets.

• While EU student applicants dropped 39.6% y-o-y, possibly with an eye on Brexit, applicants from China (up 21.5% y-o-y) and India (25.5% y-o-y) have continued to show growth in numbers.

Reopening of universities in progress.

• The Department of Education (DFE) recently reviewed COVID-19 guidelines for universities and have authorised the resumption of in-person teaching for students studying practical or practice-based subjects from 8 Mar 21. The local government will review various options for the return of remaining students by early-Apr 21.
• In addition, the vaccination rates in the UK have outpaced that of most nations, which could be a positive step in allowing the return of international students. According to latest vaccination data released by the UK government, almost 45% of UK population have received the first dose of COVID-19 vaccines.

Property assets faring better, providing a solid foundation for recovery.

• The return of student occupancy and dividends in SPH REIT would pave the way for a recovery in SPH. We expect core earnings of S$50m, up 17% h-o-h in the upcoming 1HFY21 results.

Gains from other businesses.

• Certain fair value gains could also be recognised including the recent listing of South Korean e-commerce firm, Coupang, in which SPH has a 0.1% stake.
• iFAST (SGX:AIY), as a listed entity has also seen a higher market value in recent months.

No change to earnings forecast.

• However, we factor in a higher dividend payout ratio for SPH from FY21-23F (80%/ 90%/ 100%), which amounts to S$0.055/ S$0.065/ S$0.070 respectively. Historically, SPH’s payout ratio is approximately 100% of core earnings on a pre-COVID-19 basis. See SPH's dividend history.

Upgrade SPH to BUY with a SOTP-based target price of S$1.74.

• We lower our conglomerate discount assumption for SPH to 10% (previously 30%) given the recovery in SPH REIT and continued demand for student accommodation lodging. As SPH’s property holdings are seeing improved prospects, this would likely reduce the discount on the group’s book value of approximately S$2.00/share.
• See SPH Share Price; SPH Target Price; SPH Analyst Reports; SPH Dividend History; SPH Announcements; SPH Latest News.
• Catalyst to SPH Share Price
  • Pick-up in international students’ bookings for student accommodation assets.
  • 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/ 2021-03-30

SGX Stock Analyst Report BUY UPGRADE HOLD 1.74 UP 1.220