Keppel Corporation - CGS-CIMB Research 2021-08-02: Plug & Play; Keppel To Bring SPH Further


Keppel Corporation - Plug And Play

Keppel Corp pays 1x NAV of SPH ex-media; free asset management

  • Keppel Corporation (SGX:BN4) has proposed for the complete acquisition of Singapore Press Holdings (SPH, SGX:T39), excluding its media assets, for S$2.2bn. Following the acquisition, Keppel Corp intends to delist and privatise SPH. The purchase consideration comprises ~S$1.1bn in cash and ~S$1.2bn in Keppel REIT (SGX:K71U) units (~26% of total units outstanding); this translates into S$0.668 cash and 0.596 Keppel REIT units for every SPH share held.
  • Concurrently, SPH will distribute in specie ~45% of its shareholdings in SPH REIT (SGX:SK6U) (~S$1.2bn) to SPH shareholders, retaining a 20% stake in SPH REIT. This translates into 0.782 SPH REIT units for every SPH share held. Completion will be end-2021F/ early-2022 at the earliest.
  • All in, SPH shareholders will be receiving an implied S$2.099 per SPH share. We estimate SPH’s NAV ex-media (S$2.08) less dividend distribution of the 45% stake in SPH REIT (S$0.72) at S$1.36 (vs. Keppel Corp’s payment of S$1.38). This excludes SPH’s asset management fee platform (SPH generates ~S$20m fee income p.a. at 65% EBITDA margin), which we believe Keppel Capital could scale up.

FY23F earnings per share accretion of 14%; minimal impact on gearing

  • Based on our forecast of SPH’s recurring income of S$150m and net transaction fee of S$34m, we estimate the deal to add ~14% to Keppel Corp’s FY23F net profit (before securitsation/monetisation). Keppel Corp’s net including
    • M1 network assets (S$580m),
    • Chengdu Shengshi Jingwei (S$ 324m) and
    • Keppel Logistic Foshan (S$63m).
  • The impending divestment of Keppel Logistic could also boost overall balance sheet position.

More asset monetisation means higher dividend

Keppel to bring SPH further

  • SPH REIT and Prime US REIT's AUM is estimated at S$5.5bn, with potential S$3.8bn AUM, including Seletar Mall, Woodleigh Mall, Genting Lane Data Centre, PBSA, Orange Valley and Japan aged care assets, as at 31 Aug 2020.
  • Going forward, recycling of retail assets via SPH REIT should provide further capital to accelerate Keppel Corp’s growth initiatives in new energy and renewables. Keppel Corp can further consolidate its 16.1% stake in M1 and Genting Lane data centres, which are currently jointly owned with SPH; post-acquisition, Keppel Corp will fully own both assets. Recurring income should be boosted via SPH-owned retail malls, namely Seletar Mall and Woodleigh Mall.
  • We do not rule out the merger of Keppel REIT and SPH REIT.
  • Catalysts: successful divestment of Keppel O&M (KOM) and SPH acquisition,
  • Key risk: failed attempt to divest KOM.

LIM Siew Khee CGS-CIMB Research | 2021-08-02
SGX Stock Analyst Report ADD MAINTAIN ADD 6.900 SAME 6.900