Singapore Press Holdings - UOB Kay Hian 2021-05-10: Media Transfer Protocol For A Longer-Term Gain

SINGAPORE PRESS HLDGS LTD (SGX:T39)

Singapore Press Holdings - Media Transfer Protocol For A Longer-Term Gain

SPH announced the transfer of its media business to a not-for-profit entity given the decline in advertising revenue. Deconsolidation of the media business would allow for:
1. shareholding restrictions on SPH to be lifted, and
2. removal of media segment losses from the group.
After restructuring, SPH’s NAV/share is about S$2.08, with the current price at a discount of 27%. Maintain BUY with SOTP-based target price of S$1.85.

Singapore Press Holdings (SPH, SGX:T39) announced the restructuring of its media segment, including relevant subsidiaries, relevant employees, News Centre and Print Centre along with their respective leaseholds, as well as all related intellectual property and information to the newly incorporated subsidiary SPH Media.
Under the restructuring proposal, SPH Media will eventually be transferred to a not-for profit entity, or a newly formed public company limited by guarantee (CLG). SPH will provide initial resources and funding with a cash injection of S$80m and S$30m worth of SPH shares and SPH REIT (SGX:SK6U) units.

Subject to shareholders’ approval, once the transfer of SPH Media is completed, SPH will no longer be subjected to shareholder and other relevant restrictions under the Newspaper and Printing Presses Act (NPPA). The NPPA restricts shareholding ownership of SPH to 5%.
An EGM is scheduled between Jul-Aug 21, with the targeted completion set for 3-6 months later.
The Ministry of Communications (MCI) has noted that it is prepared to provide funding support for the CLG with a ministerial statement scheduled to be delivered on 10 May 21. SPH will not have any further commitment or obligation to provide funding for the CLG post transfer.
SPH’s contribution value will be about S$252m, taking into account the book value of its shares, the relevant SPH REIT shares, book value of key leases in its media segment properties (S$48m) and net asset value of the media segment (S$88m). The market value of key leases based on valuation reports as at 31 Aug 20 amounts to S$147m.

According to the group, on a pro forma basis, SPH’s earnings will improve by about S$10m PATMI losses (excluding grants) for 1HFY21 on a pro forma basis will be extended to S$122m (from a S$95m profit including effects of reduced media segment losses).
NAV/share for SPH will also be reduced to S$2.08 (from S$2.24) while gearing will increase slightly to 32.4% (from 30.9% after the proposed restructuring).

While the initial outlay for the restructuring may not estimate that SPH's FY22/23 core earnings can be lifted by 26%/36% respectively.
If the NPPA is lifted for SPH, this would also provide shareholding flexibility for the group.

Re-iterate BUY on SPH with SOTP-based target price of S$1.85. Our SOTP-based valuation for SPH has already taken a conservative stance, without accounting for a 27% discount of its post-restructuring NAV/share.
See

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-10

SGX Stock Analyst Report BUY MAINTAIN BUY 1.85 SAME 1.850