SINGAPORE PRESS HLDGS LTD (SGX:T39)
KEPPEL CORPORATION LIMITED (SGX:BN4)
Keppel Proposes To Acquire SPH - Another One Bites The Dust
- We view Keppel Corporation (SGX:BN4)’s proposal to acquire SPH (SGX:T39)’s non-media assets positively as it allows the company to enter new property segments, expand its asset management reach and generate more recurring income.
- From SPH’s perspective, the offer could be higher, but not by much. A full privatisation offer also avoids the scenario where prime assets are cherry picked. Hence, the recommendation would be to ACCEPT THE OFFER, barring a superior competing offer.
Keppel Corporation: Entering into new segments, and accessing more recurring income.
- Keppel Corporation announced a proposed privatisation offer for Singapore Press Holdings (SPH, SGX:T39) through a scheme of arrangement that values the latter at S$3.4b. Upon completion of the proposed transaction, SPH will be delisted and become 100% owned by Keppel Corporation, which in turn will hold 20% stakes in both SPH REIT (SGX:SK6U) and Keppel REIT (SGX:K71U).
- The proposed transaction values SPH at S$2.099/share and will take place as follows:
- Step 1: For every one share of SPH, its shareholders will receive a distribution-in-specie of 0.782 units in SPH REIT. This has been valued at S$0.716 per share and comprises SPH’s 45% stake in SPH REIT.
- Step 2: Keppel Corporation will then acquire all of SPH’s shares, and in consideration, shareholders will receive:
- 0.596 units in Keppel REIT valued at S$0.715 per share; and
- S$0.668 per share in cash.
SPH: Total consideration of S$2.099/share.
- The scheme is conditional on the completion of SPH’s media restructuring in which an EGM is scheduled in Aug – Sep 21, as well as the non-occurrence of any material adverse effect (NAV drops by more than S$540m) along with other shareholder and regulatory approval.
- The proposed consideration values SPH at 1.0x P/NAV and at an 11.6% premium to the counter’s last closing price. Should there be a superior competing offer, the break fee would amount to S$34m. The proposed privatisation is expected to be completed soon after the media restructuring in Dec 21.
Keppel Corporation (SGX:BN4) (BUY, Target Price: S$6.48) – Adrian Loh
A bold move.
- In our view, Keppel Corporation’s proposed acquisition of SPH is a good deal for its shareholders as it gives the company exposure to assets that it currently does not have, especially the Purpose Built Student Accommodation (PBSA), while expanding its foothold in its three key business segments – asset management, urban development and connectivity. Asset management in particular could witness a 27% increase in AUM to ~S$47b.
Not exactly asset-light.
- While the acquisition bulks up the company’s property assets in the near term, Keppel Corporation stated that it will look to monetise as much of the SPH assets as possible via existing or new REITs, e.g. potential for Keppel DC REIT (SGX:AJBU) to acquire the Genting Lane Data Centre once it is completed and stabilised, or the potential listing of a new Singapore retail REIT that combines both Keppel Land’s malls as well as SPH’s malls.
An EPS- and ROE-accretive deal.
- On a pro forma basis, the combined entity would see an earnings per share (EPS) accretion of 6% for 1H21 while return of equity (ROE) would have been 0.3ppt higher at 5.8%.
- In addition, Keppel Corporation stated that its ROE target of 15% for 2025 remains unchanged, and that it will continue to look to return cash to shareholders as it monetises assets.
- Given that Keppel Corporation increased its 1H21 dividend by 4x y-o-y to S$0.12 despite already working on this deal in 2Q21, we do not foresee any risk to a similarly strong dividend at end-21.
Gearing to increase in the near term.
- Post the transaction, which will be funded by S$1.08b in cash and S$1.16b worth of Keppel REIT units, Keppel Corporation’s gearing increases from 0.85 as at end-1H21 to close to 1.0x. However the company noted that it expects to realise cash inflows from its 2020 divestment programme which has generated S$2.3b since it was announced last year.
- Last week at its 1H21 results briefing, management indicated that it expects to hit its S$5b divestment target by end-23.
Acquisition timeline:
- The proposed transaction is subject to approval by SPH and SPH’s shareholders, with the critical one being that SPH shareholders must approve the restructuring of SPH's media business. It is anticipated that in Oct/Nov 21, Keppel Corporation’s EGM as well as SPH’s scheme meeting will take place and assuming both are successful, the transaction is expected to close by end-Dec 21.
Maintain BUY on Keppel Corporation with a SOTP-based target price of S$6.48.
- As shown in the report attached, our pro forma valuation with the inclusion of SPH’s assets has only risen slightly to S$6.55. This incorporates a decline in Keppel Corporation’s stake in Keppel REIT. We believe that this pro forma valuation for SPH may be conservative given that its assets, assuming completion of the transaction, could be monetised reasonably quickly given the enlarged platform provided by Keppel Corporation across its business segments. In addition, we note that while we value SPH’s PBSA assets at 1x P/B, similar assets are trading at 1.2-1.3x.
- See
Singapore Press Holdings (SPH, SGX:T39) (ACCEPT OFFER, Target Price: S$2.10) – Lucas Teng
ACCEPT OFFER.
- The offer price of S$2.099/share is approximately 5% above our previous target price of S$2.00, which appears to be fair. We think valuation could be slightly higher, but not by much.
- In our view, the most appealing aspect of SPH’s portfolio (ex. media) is its student accommodation assets. Peers in the UK, such as GCP Student Living and Unite Group currently trade at approximately 1.2-1.3x P/B. The asset type is increasingly sought after given its resilience to COVID-19 effects from a rising domestic student population. Assuming a blue sky scenario, and that we raise the valuation of these assets to 1.2x book value (currently implied value of 1.0x book value, based on cap rate of 5% in our SOTP-based target price), our target price rises to S$2.16/share (assuming ceteris paribus), only slightly (3%) above the offer value of S$2.099.
- A full privatisation avoids the situation where SPH’s assets are cherry picked, leaving SPH with its remaining debt and risk of monetising the remaining assets. The offer would appear to take an overall valuation outcome for SPH into consideration. We opine that it is probably reasonable to expect some conglomerate discount on the group’s assets when considering the group’s overall valuation.
Taking an overall view on valuation and shareholding structure.
- Management noted that there were more than 20 potential bidders, in which Keppel Corporation provided the preferred solution which maximises value and minimises disruption for SPH. Keppel Corporation’s involvement allows for a controlling stakeholder, which would not have been possible if the status quo was maintained. If the status quo (no offer) were maintained, the lack of controlling ownership would not be ideal to allow the group to execute its business strategies.
- See
- At the offer price of S$2.099, SPH is valued at 1.0x P/B, and 33.9x 2021F P/E. ACCEPT THE OFFER, barring a superior competing offer for SPH as a whole.
- We lower our conglomerate discount for SPH to 5% (previously 10%) and our target price shifts to S$2.10.
Lucas Teng
UOB Kay Hian Research
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Adrian Loh
UOB Kay Hian
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https://research.uobkayhian.com/
2021-08-03
SGX Stock
Analyst Report
2.100
UP
2.000
6.480
SAME
6.480
