Singapore Press Holdings Ltd

Equity Research 2 August 2021

1

Company update

Singapore Press Holdings Ltd Singapore | Communication Services

Research Team

Rating HOLD (as at 2 August 2021)

Last Close SGD 1.88

Fair Value SGD 1.92

Value unlocking proposed

• SPH’s strategic review has concluded with the

proposal for Keppel Corp to acquire all shares of SPH

post restructuring of the media business in an

estimated $3.4bn privatisation offer.

• SPH shareholders to receive total proposed

consideration of SGD2.099/share, which comprises of

cash SGD0.668, 0.596 Keppel REIT units and 0.782

SPHREIT units per SPH share.

• What’s next: EGM to be called in August/September.

SPH to eventually delist and privatise under this plan.

• Our thoughts: Deal looks fair in providing a balanced

outcome for value unlocking for shareholders while

avoiding a situation where prime assets may be

cherry-picked. The proposal implies a 39.9% premium

to the stock’s closing price of SGD1.5/sh prior to the

company’s 30th March strategic review announced,

or a 11.6% premium to the last close on 30th July.

Investment thesis SPH is a leading media organization in Asia, which is in

the process of innovating digitally to transform its media

business to meet changing readership and advertisers’

needs. To diversify its income stream beyond media

which is seeing structural headwinds, the group has

made moves beyond its core business to diversify its

portfolio, including its acquisition of student

accommodation assets overseas, positioning in the

aged care market in Singapore (Orange Valley Nursing

Homes) with plans for expansion in Japan with Bridge C

Capital and acquisition of M1 limited (with Keppel Corp)

in April 2019 to leverage on synergies and explore new

areas of growth. While a modest recovery path for the

company’s key businesses is the base case ahead,

supported by vaccine rollouts progress and global

economic recovery, near term share price volatility is

expected pending developments on the strategic

review, which has lifted share price and raised optimism

for potential value unlocking initiatives.

Security Information

Price Performance

Financial summary

Prior results highlights

Source: Bloomberg, Company, Internal estimates

(financial year ending 31 August). NM: not meaningful.

SPH SP

Market Cap (SGD bn)

Daily turnover (SGD m) 24.3

100%

1,607

Top Shareholder Vanguard Group 2.54%

Ticker

3.0

Free Float

Shares Outstanding (m)

0

1000

2000

3000

4000

0

1

2

3

4

5

Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 Aug-21

SPH SP Equity STI Index (RHS)

SGD mn 2020 2021E 2022E

Revenue 866 910 929

Operating profit 110 205 222

PATMI -84 159 160

Earnings/sh (S$) -0.07 0.10 0.10

Dividend/sh (S$) 0.03 0.06 0.06

Financial year ends 31-August

SGD mn 1HFY20 1HFY21 %

Operating revenue 471.4 417.1 -12%

Other operating income 43.2 8.9 388%

Total revenue 480.3 460.3 -4%

Total costs 377.6 340.5 -10%

Operating profit 102.7 119.8 17%

FV change on investment

properties10.5 -8.4 nm

Share of results of

associates and JVs2.5 4.5 81%

Net income from

investments7.6 20.9 176%

Profit before tax 123.3 136.8 11%

PATMI 77.6 97.9 26%


2

Investment summary • Trading halt was called this morning pre-market

opening - SPH, SPHREIT, Keppel Corp and KREIT are on

trading halt today, with the announcement that

Keppel Corp has proposed to acquire all shares of

SPH post restructuring of the media business in a

$3.4bn privatisation offer.

• For details, please refer to the following links:

News - Singapore Press Holdings (sph.com.sg);

https://investor.sph.com.sg/newsroom/20210802_09003

6_T39_RF9CQIJEXQ9ONNLB.2.pdf;

https://investor.sph.com.sg/newsroom/20210802_09003

6_T39_RF9CQIJEXQ9ONNLB.3.pdf.

• Transaction strikes a balance between maximising

value and minimizing disruption for shareholders –

Following SPH’s announcement on 6th May 2021

involving the restructuring of the media business and

transfer of SPH Media to a public company limited by

guarantee (CLG) for a nominal sum, the board

carried out a comprehensive review of various

strategic options (including 1) maintain status quo for

SPH ex-media; 2) partial sale/monetization of certain

assets or; 3) privatization offer for SPH), which has

concluded with the preferred solution of privatizing

the whole company in order to maximise a better

valuation outcome for SPH shareholders.

• Value unlocking for SPH shareholders has

materialised via the privatisation offer from Keppel

post media restructuring, supporting our previous

“Hold” advice. As per SPH, more than 20 parties

approached for its ex-media business. In our view, the

deal looks fair in both unlocking value for SPH

shareholders and avoiding a situation where prime

assets may be cherry-picked, while the receipt of

SPHREIT and KREIT units will allow shareholders to still

participate in the recovery prospects of the retail and

commercial real estate segments at attractive

dividend yields (historical average yields ~4% range).

• SPH shareholders will receive a combination of cash,

KREIT and SPHREIT shares under the proposal:

SGD0.668/sh, 0.596 Keppel REIT units/sh (valued at

SGD0.715/sh) and 0.782 SPHREIT units/sh (valued at

SGD0.716/share from a distribution in-specie by SPH).

This implies total equity value of SGD3.4bn for SPH and

total consideration of ~SGD2.099/share (+39.9%

premium to closing price of SGD1.5/sh before the

strategic review was announced 30th March 2021).

• Timeline expected ahead – An EGM will be held in

August/September to approve the media business

restructuring. Thereafter another EGM relating to the

Prior 1H FY2021 results highlights

Source: Company

https://investor.sph.com.sg/news.html/id/2344903

https://investor.sph.com.sg/newsroom/20210802_090036_T39_RF9CQIJEXQ9ONNLB.2.pdf





3

non-media business acquisition proposed by Keppel

Corp will be held in October/November 2021 to

approve the distribution in specie of SPHREIT units and

scheme meeting for the acquisition of SPH. Deal

completion of the proposed transaction is expected

to be completed December 2021.

• SPH is expected to eventually delist and privatise

should the transaction move forward successfully,

subject to holder, regulatory and legal approvals.

ESG updates • SPH‘s ESG performance is above the global sector

median and reflects the firm’s strong governance

structure (majority independent board, separate

CEO and Chairman roles which support

management oversight) and efforts on sustainable

sourcing initiatives relative to peers (raw material

sourcing). Our fair value is based on sum of parts

valuation and has incorporated some positive

expectations of potential value unlocking initiatives

as the company executes on its strategic

transformation plan. On other positives observed, the

company has adopted best industry practices in

outlining the scope of control over access of personal

data, including amendments and deletion of records

and has in place various initiatives to address

increasingly stringent regulations on the topic of data

security. There is also evidence of a formal

anonymous whistleblower system with legal

protection, which contributes to the firm’s overall

governance rating.

Potential catalysts • Recovery in growth prospects supported by faster

than expected Covid-19 containment and

economic recovery. Ramp up in digital circulation

and rebound in advertisement revenue. Dividends

increase. Potential value unlocking of its non-

media/property assets, potential restructuring of its

media business (under the Newspaper & Printing

Presses Act, Chapter 206 of Singapore, Minister’s

approval is required for any arrangement that

involves aggregate shares more than 5%).

Investment risks • Larger-than-expected decline in its traditional print

media and advertising business. Operational issues

in the PBSA and aged care portfolios. Significant

slowdown in sales at its property projects. Diseases

outbreak, macro-economic deterioration.

Dividends cut. Impairment risks for investment

properties. Disappointments in value unlocking

initiatives could result in share price pressure, given

recent burst of optimism on the back of the start of

a strategic review announced by the company.


4

Valuation analysis

Source: Bloomberg

Price/Earnings chart Price/book chart

Source: Bloomberg Source: Bloomberg

2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E

Media

SINGAPORE PRESS HOLDINGS LTD (SPH SP) 20.4 23.5 0.9 1.0 3.2 3.8 2.8 4.2

TBS HOLDINGS INC (9401 JP) 14.3 13.6 0.4 0.4 1.9 1.9 3.0 3.4

NINE ENTERTAINMENT CO HOLDIN (NEC AU) 18.4 16.9 2.5 2.3 3.6 4.1 14.1 14.2

STAR MEDIA GROUP BHD (STAR MK) NA NA 0.4 0.4 2.3 2.5 (4.4) (2.0)

Stocks involved in proposed transaction

SPH REIT (SPHREIT SP) 19.1 18.3 1.0 1.0 5.7 5.7 5.2 5.5

KEPPEL REIT (KREIT SP) 26.7 23.1 0.9 0.9 4.9 5.0 3.5 3.7

KEPPEL CORP LTD (KEP SP) 14.9 12.1 0.9 0.9 3.4 3.8 6.1 7.1

Price/Earnings Price/Book Dividend Yield (%) ROE (%)

0

5

10

15

20

25

30


PE Avg +2SD

+1SD -1SD -2SD

0.0

0.4

0.8

1.2

1.6

2.0

2.4


PB Avg +2SD +1SD -1SD -2SD


5

Additional highlights

Source: Company


6

Source: Company


7

Source: Company


8

Source: Company


9

Company overview (as of end FY2020)

Company description

SPH's core business is publishing of newspapers, magazines and books in both print and digital editions. It also

owns other digital products, online classifieds, radio stations and outdoor media. On the property front, SPH

owns ~70% in a real estate investment trust called SPH REIT which comprises Paragon, a premier upscale retail

mall and medical suite/office property in Orchard Road, The Clementi Mall, a mid-market suburban mall and

The Rail Mall, a stretch of shopping and dining outlets along Upper Bukit Timah Road. SPH REIT also holds 85%

equity stake in Figtree Grove, a freehold sub-regional shopping centre in Wollongong, New South Wales,

Australia. SPH also owns and operates The Seletar Mall. It is developing a new commercial cum residential

site consisting of The Woodleigh Residences and The Woodleigh Mall. It is also an owner, manager and

developer of a portfolio of Purpose-Built Student Accommodation (PBSA) in the United Kingdom and

Germany. It currently operates two distinctive brands, Student Castle and Capitol Students. SPH is in the aged

care sector in Singapore and Japan, and owns Orange Valley, one of Singapore's largest private nursing

homes. SPH also runs a regional events arm and a chain of Buzz retail outlets, and has also invested in the

education business.

FY20 revenue, by segments FY20 revenue, by geography

FY20 net income Dividend per share (SGD)

Source: Company (financial year ends August), Bloomberg

0

200

400

600

800

1,000

1,200

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

SGD m

Net Income


10

Company financials Income statement

Profitability ratios

Credit ratios

Source: Company, Bloomberg

In Millions of SGD except Per Share FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020

Revenue 1,124.3 1,032.5 982.6 959.3 865.7

- Cost of Rev enue — — — — —

Gross Profit — — — — —

+ Other Operating Income 28.8 19.5 23.1 18.4 89.0

- Operating Expenses 816.7 815.3 755.2 741.5 779.3

Operating Income or Losses 336.4 236.7 250.5 236.2 175.3

- Interest Expense 31.3 31.3 37.5 49.3 65.1

- Foreign Exchange Losses (Gains) -0.5 2.0 -1.7 -2.1 -1.6

- Net Non-Operating Losses (Gains) -55.4 -228.1 -154.3 -109.3 197.2

Pretax Income 361.0 431.5 368.9 298.3 -85.3

- Income Tax Expense (Benefit) 54.9 36.3 47.6 38.7 27.2

Income Before XO Items 306.1 395.2 321.3 259.5 -112.5

- Extraordinary Loss Net of Tax 0.0 0.0 0.0 0.0 0.0

- Minority/Non Controlling Interests (Credits) 40.8 45.1 42.9 46.3 -28.8

Net Income/Net Profit (Losses) 265.3 350.1 278.4 213.2 -83.7

Net Inc Avail to Common Shareholders 265.3 350.1 278.4 213.2 -83.7

Abnormal Losses (Gains) 0.1 -137.8 -124.5 -58.8 262.2

Tax Effect on Abnormal Items 4.5 25.1 24.1 13.8 -42.6

Normalized Income 270.0 237.4 178.0 168.1 135.9

Basic Earnings per Share 0.2 0.2 0.2 0.1 -0.1

Basic Weighted Av g Shares 1,614.4 1,615.1 1,615.3 1,613.8 1,609.4

Diluted EPS Before Abnormal Items 0.2 0.1 0.1 0.1 0.1

Diluted EPS Before XO Items 0.2 0.2 0.2 0.1 -0.1

Diluted EPS 0.2 0.2 0.2 0.1 -0.1

Diluted Weighted Av g Shares 1,621.5 1,620.5 1,621.4 1,619.8 1,616.7

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020

Returns

Return on Common Equity 7.44 9.99 8.05 6.16 -2.46

Return on Assets 4.42 5.81 4.54 3.22 -1.05

Return on Capital 5.96 7.52 6.14 4.81 -0.77

Return on Inv ested Capital 5.01 3.76 3.73 3.24 1.48

Margins

Operating Margin 29.92 22.93 25.49 24.62 20.25

Incremental Operating Margin -97.36 -108.56 — -61.23 -65.05

Pretax Margin 32.11 41.79 37.54 31.10 -9.85

Income before XO Margin 27.23 38.28 32.70 27.06 -13.00

Net Income Margin 23.60 33.91 28.33 22.23 -9.67

Net Income to Common Margin 23.60 33.91 28.33 22.23 -9.67

Additional

Effectiv e Tax Rate 15.21 8.41 12.91 12.99 —

Dv d Payout Ratio 109.55 69.19 98.61 98.28 —

Sustainable Growth Rate -0.71 3.08 0.11 0.11 —

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

12 Months Ending 31/08/2016 31/08/2017 31/08/2018 31/08/2019 31/08/2020

Total Debt/EBIT 3.86 6.35 6.42 8.71 19.83

Net Debt/EBIT 1.73 3.50 4.50 6.18 14.90

EBIT to Interest Expense 10.76 7.56 6.68 4.79 2.69

Long-Term Debt/Total Assets 20.15 8.65 21.33 23.16 24.76

Net Debt/Equity 13.69 19.60 26.87 30.99 52.76

Important disclosures

ANALYST DECLARATION:

The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the listed entity, and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein.

The analyst(s) who wrote this report does not hold any financial interests in the listed entity. The analyst’s/analysts’ connected persons do not hold any financial interests in the listed entity.

The analyst(s) does not receive compensation directly or indirectly related to the inclusion of specific recommendations or views in this report. The reporting line of the analyst(s) is separate from and independent of the business solicitation or marketing departments of Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) Group.

The analyst(s) or his/her associate confirms that he or she does not serve as directors or officers of the listed entity, and the listed entity or other third parties have not provided or agreed to provide any compensation or other benefits to the analyst(s) in connection with this report.

DISCLAIMER FOR RESEARCH REPORT

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without the written consent of OCBC Investment Research Private Limited (“OIR” or “we”). This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein or to participate in any particular trading or investment strategy. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. In the event that you choose not to seek advice from a financial adviser, you should consider whether investment in securities and the securities mentioned herein is suitable for you. Oversea-Chinese Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited (“BOS”), OIR, OCBC Securities Private Limited (“OSPL”) and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. There may be conflicts of interest between OCBC Bank, BOS, OIR, OSPL or other members of the OCBC Group and any of the persons or entities mentioned in this report of which OIR and its analyst(s) are not aware due to OCBC Bank’s Chinese Wall arrangement.

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RATINGS AND RECOMMENDATIONS:

- OIR’s technical comments and recommendations are short-term and trading oriented.

- OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.

- As a guide, OIR’s BUY rating indicates a total expected returns (excluding dividends) in excess of 10% based on the current price; a HOLD rating indicates total expected returns (excluding dividends) within +10% and -5%; a SELL rating indicates total expected returns (excluding dividends) less than -5%. For REITs and Business Trusts, total expected returns including dividends apply.

- For companies with market capitalisation of S$150m and below, OIR’s BUY rating indicates a total expected returns (excluding dividends) in excess of 30%; a HOLD rating indicates total expected returns (excluding dividends) within a +/-30% range; a SELL rating indicates total expected returns (excluding dividends) less than -30%. For REITs and Business Trusts, total expected returns including dividends apply.

Co.Reg.no.: 198301152E

Published by OCBC Investment Research Private Limited

Singapore Press Holdings Ltd

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