Singapore Press Holdings (SPH) - OCBC Investment 2021-05-07: Strategic Review Update


Singapore Press Holdings (SPH) - Strategic Review Update

  • Proposal to spin off SPH's media business into a not-for-profit entity, subject to regulatory and shareholder approvals, which should reduce NAV per share by ~6.6% to S$2.08/share.
  • Assuming approvals are received, the estimated timeline for completion is 3-6 months after the EGM expected in July-August 2021.
  • Positive longer term on this proposal, which removes the overhang from the loss-making media business and provides SPH with flexibility to focus on other growth opportunities.
  • Maintaining our fair value of S$1.92 for SPH, which implies a smaller holding company discount of - 7% to the estimated post-restructuring NAV of S$2.08/share.

SPH's media business restructuring proposal

  • Following SPH's announcement of its strategic review announced in March, SPH (SGX:T39) plans to transfer its media business into a not-for-profit entity, amid the ongoing headwinds faced by the business (loss making in FY20 and 1HFY21 excluding JSS: job support scheme) and considerations that include the public role of the media business (i.e. not feasible to wind up the business due to its public role).

Proposal is subject to both regulatory and shareholder approvals

  • Subject to an EGM that will be convened for shareholder approval, SPH plans to provide the initial resources and funding by capitalising SPH Media with
    • a cash injection of S$80mn,
    • S$30mn of SPH shares and SPH REIT (SGX:SK6U) units, and
    • stakes in 4 of its digital media investments
      • Target Media Culcreative Pte Ltd,
      • Singapore Media Exchange Pte Ltd,
      • AsiaOne Limited Pte Ltd and
      • DC Frontiers Pte Ltd.
  • The proposal is for an eventual transfer of SPH Media to a newly incorporated company for a nominal sum (further details pending), which would enable SPH Media to seek funding from a range of public and private sources as SPH would no longer be subject to shareholder and other restrictions applicable under the Newspaper and Printing Presses Act (NPPA).
  • For the list-co (SPH), the above proposal should result in improved financial flexibility to manage its capital and focus on other growth opportunities.

One-off funding exercise

  • In its post announcement briefing, SPH clarified the capitalization provided to the new entity CLG (company limited by guarantee) as part of the restructuring will be a one-off exercise and should be sufficient for the new entity through “a few years of expected performance”). No further funding is expected post-deal.
  • On a proforma basis, SPH's 1HFY21 PATMI (excluding JSS and restructuring adjustments) would improve 11.4%, while gearing will increase by 1.5ppt from 1HFY21’s 30.9% to 32.4%.

Proforma financial impact of the proposed restructuring (based on 1H21)

  • After the proposed restructuring exercise , SPH estimates its 1H21 net asset value post proposed restructuring will decline ~6.6% to S$2.08/share, while 1H21 operating profit (ex-grants) post restructuring adjustments would increase 9.4% to ~$117mn.

Indicative timeline

  • An EGM to seek shareholder approval is expected to be called in July-August 2021, following which (assuming approvals received), SPH expects to complete the transfer of SPH Media to the CLG (company limited by guarantee) 3-6 months after the EGM.

Longer term positive from lifting of media overhang

  • Longer term positive from lifting of media overhang, strategic review continues for its remaining businesses (which mainly comprise of property investments).
  • SPH's share price last trades at 15% discount to its revised stated NAV of S$2.08. We are maintaining our fair value estimates of S$1.92 for SPH pending completion of the deal, which implies a smaller holding company discount of -7% to the estimated post-restructuring reduced NAV of S$2.08/share (estimated to fall -6.6% post proposed restructuring), in view of the lifting of uncertainties surrounding the media business.
  • During the recent results briefing, SPH's management had indicated its strategic review was not confined to only the media business, which suggests more announcements could come in future.

SPH's 1HFY21 results had continued to reflect the structural decline of the media business

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-05-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.92 DOWN 2.280