SPH - UOB Kay Hian 2021-11-02: Potential Bidding War Imminent

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SINGAPORE PRESS HLDGS LTD (SGX:T39)

SPH - Potential Bidding War Imminent

• Cuscaden Peak announced that it had submitted a proposal to acquire all of SPH (SGX:T39)’s shares for S$2.10 fully in cash per share at a consideration of S$3.4b, narrowly edging out Keppel Corporation (SGX:BN4)’s original cash-plus-share offer of S$2.099. 
• With SPH’s prized assets on the line, we reckon that a bidding war is imminent. However, barring any new offer, we recommend shareholders to accept the highest offer which is currently Keppel’s offer at S$2.15/share over Cuscaden’s.

Possible start of a bidding war for SPH

• Cuscaden Peak (Cuscaden), a consortium comprising of three subsidiary companies, announced on 28 October that it had submitted a proposal to acquire all of SPH’s shares for S$2.10 fully in cash per share at a consideration of S$3.4b. Cuscaden’s full cash offer of S$2.10 narrowly edges out Keppel’s original cash-plus-share offer of S$2.099/share.
• SPH has noted that Cuscaden’s offer is not a binding agreement and has not been accepted by SPH. The total consideration for the offer will not be reduced or adjusted for the S$34m break fee between SPH and Keppel.
• Some other conditions include the completion of the demerger of SPH’s media business, which has been approved by shareholders in Sep 21 and is expected to be completed by Dec 21. Also, subject to SPH accepting the new offer, Cuscaden would incur an obligation to make a chain offer for all units of SPH REIT (SGX:SK6U) at not more than S$0.964/unit.

Consortium led by experienced hotelier.

• Cuscaden Peak is a consortium of subsidiary companies led by Hotel Properties Limited (SGX:H15) (40%), founded by tycoon Ong Beng Seng, CLA Real Estates Holdings (30%) and Mapletree investments (30%). Cuscaden’s shareholders are large property and real-estate manager with interests in real-estate, commercial property development, hotel management, etc.

No surprise given SPH's high quality retail and commercial assets.

• Through SPH REIT (SGX:SK6U), SPH holds interests in several defensive malls in Singapore and Australia that have performed well in spite of the COVID-19 restrictions. Located in strong catchment areas, tenant sales from Singapore’s suburban malls (Seletar and Clementi Malls) have already crossed pre-COVID-19 levels while sales in Australia have recovered to pre-COVID-19 levels.
• As both Singapore and Australia start transitioning to living with the endemic, footfall is poised to return to these malls. With 99% overall occupancy, a healthy portfolio WALE of 5.4 years (NLA) and 2.7 years by gross rental income (GRI), we reckon that large property and real estate managers such as Cuscaden would find these assets attractive when merged with their own respective portfolios.

Unlocking value via PBSA and aged-care assets.

• SPH’s purpose-built student accommodation (PBSA) assets have recovered fully from the effects of COVID-19 as international students have started returning to school for the new academic year (AY). The PBSA segment has already attained 96.5% target revenue for AY 21/22 with most of the properties having 100% occupancy rates. With more student bookings coming in on Oct 21 and Jan 22, stronger booking momentum is poised to boost room rates moving forward.
• Also, SPH’s aged-care assets have started to recover as FY21 occupancy rates in Japan and Singapore were > 90% and 84% (77%) respectively. PBSA assets are valued at S$1.5b as of end-FY21 whereby a potential listing of a REIT vehicle or divestment may unlock value for potential buyers.

Accept Keppel’s offer.

• With the new full cash offer by Cuscaden of S$2.10, SPH is valued at 0.9x FY22F P/B, and 19.2x FY22F P/E. However, given the recent rally in share prices for Keppel REIT (SGX:K71U) and SPH REIT, we recommend shareholders to ACCEPT THE HIGHEST OFFER which is currently Keppel’s OFFER at a higher valuation of S$2.15/share, barring a superior competing offer for SPH as a whole.
• See
  • SPH's Share Price,
  • SPH's Target Price,
  • SPH's Analyst Reports,
  • SPH's Dividend History,
  • SPH's Announcements,
  • SPH's Latest News.
• Catalysts to SPH's share price:
  • Superior competing offer for SPH as a whole.
  • Stronger-than-expected footfall for retail malls.
  • Strong bookings from international students for student accommodation assets.
• See also
  • Keppel Corporation's announcements.
  • Hotel Properties Limited's announcements.

Llelleythan Tan Yi Rong UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2021-11-02

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