Drop in SPH share price 'likely overdone'

An OCBC research report out yesterday argues that investors involved in a significant sell-off of Singapore Press Holdings (SPH) shares of late have gone too far.

And already some investors see a buying opportunity.

SPH shares jumped by eight cents, or 3 per cent, to close at $2.71 yesterday - its biggest one-day gain in more than a year.

OCBC Investment Research upgraded the blue-chip stock - a constituent of the Straits Times Index (STI) - to a "buy" call on valuation grounds, given how far its price has fallen. Analyst Eli Lee maintained a fair-value estimate of $3.25 a share.

The stock has fallen by 12.9 per cent since July 14, when it announced third-quarter results that "tracked below expectations".

Mr Lee called the counter's underperformance "remarkable" against the STI's gain since July 15 last year, which saw the share price fall by 34.3 per cent, even as the STI rose by 13 per cent as at Wednesday.

"While residual uncertainties continue to hang over the group's core media business, we believe the share price correction is likely overdone at this point," Mr Lee said in a note, citing the company's cost-control attempts and business diversification.

He noted that the 45.2 per cent slide in third-quarter profits came largely on the back of a one-time impairment linked to magazine operations. Otherwise, the fall in profit would have been 19.2 per cent.

"Notwithstanding continued pressures on the group's media business due to industry disruption and unfavourable market conditions, the management team has actively sought to implement cost-side controls with some success," Mr Lee wrote in the note.

Excluding impairment charges in the last quarter, total costs would have fallen 6.7 per cent, in spite of inflationary pressures.

Significant efforts have also been made to diversify earnings with its recent acquisition of Orange Valley Healthcare and the recent winning tender for a mixed site at Bidadari with joint venture partner Kajima Development.

SPH has seen "solid numbers" in its property segment, with revenue up 2.2 per cent in the recent quarter on the back of higher rental income, he said.

Furthermore, a profit of about $150 million is in the pipeline this quarter, he added, thanks to a one-off gain from the sale of its stake in 701Search in June.

A version of this article appeared in the print edition of The Straits Times on September 22, 2017, with the headline 'Drop in SPH share price 'likely overdone''. Print Edition | Subscribe