CGS-CIMB says SPH could see new substantial shareholder, unlock assets

SPH currently has a fragmented shareholding structure, with the top 10 largest shareholders owning just 8.8 per cent of the company.
SPH currently has a fragmented shareholding structure, with the top 10 largest shareholders owning just 8.8 per cent of the company.ST PHOTO: GAVIN FOO

SINGAPORE (THE BUSINESS TIMES) - The next possibilities for Singapore Press Holdings (SPH) may include the emergence of a substantial shareholder and the unlocking of value from its assets, CGS-CIMB suggested.

In a research note on Thursday (June 17), CGS-CIMB increased its target price on SPH shares to $2.19, from $2.09 previously, and reiterated an "add" call.

SPH, which publishes The Straits Times, last month announced plans to transfer its media business to a company limited by guarantee (CLG), and said this will be the first step under its ongoing strategic review.

After carving out the media business, SPH will no longer be bound by the provisions of the Newspaper and Printing Presses Act, which stipulates that no one can become a substantial shareholder and own more than 5 per cent in aggregate of SPH shares, without the approval of the minister.

That means interested parties will then be able to acquire a substantial stake following the restructuring, analysts Eing Kar Mei and Lim Siew Khee wrote.

SPH currently has a fragmented shareholding structure, with the top 10 largest shareholders owning just 8.8 per cent of the company while each of the remaining shareholders own 0.1 per cent or less.

What may attract investors to SPH would include its quality portfolio and the fact that the group's earnings are mainly supported by stable income, the brokerage noted.

CGS-CIMB also noted that SPH's development exposure out of total assets is "much smaller" than most of the other property developers. The brokerage does not expect property development to be a yearly contributor to SPH's revenue.

The group has development exposure due to its 50 per cent stake in The Woodleigh Residences mixed development and its 40 per cent stake in a data centre in Genting Lane. Assuming the Woodleigh project is fully developed, and including the data centre, SPH's development component would account for about 9 per cent of total assets, versus property developers' exposure of 8 per cent to 35 per cent.

As for who might be interested in SPH without the media business, Ms Eing and Ms Lim noted the "endless possibilities", ranging from strategic investors or real estate funds that already have a real estate portfolio, to any investors who want exposure to the real estate management business.

Among the real estate funds and companies that CGS-CIMB screened, those with exposures most similar to SPH's are ARA Asset Management, Brookfield, Mapletree Investments, Metro Holdings and Savills Investment Management.

"SPH could also be a good fit for Keppel Corp, as both groups had the same chairman, Lee Boon Yang, from 2011 to April 23, 2021, and shared joint ownership and legacy investments," the analysts said.

They added that SPH's aspirations to grow its recurring income base in asset management from education and senior living are similar to Keppel Capital's model.

What could also come after the media unit's transfer is the unlocking of value from SPH's assets that have been nurtured for years, according to CGS-CIMB.

This may come in the form of listing its purpose-built student accommodation (PBSA) portfolio, selling Seletar Mall, or divesting stakes in iFast and good class bungalows (GCBs) in Singapore.

The analysts estimated that the PBSA assets could be divested for an initial capital gain of between $93 million and $156 million, while the investments in iFast and the four GCBs could realise a total capital gain of around $400 million.

CGS-CIMB also noted that SPH's non-core assets could be worth around $1.23 billion, making them "potentially ripe for capital recycling". These include the stakes in M1 and iFast, and residential and commercial properties in Singapore and Hong Kong.

"If SPH sells all of these assets, it could double its PBSA portfolio, raising our FY22-23 net profit forecasts by about 30 per cent and dividend yields to 4.5 per cent to 5 per cent on the stock," it said.

SPH shares closed 1.64 per cent lower at $1.80 on Friday.