SPH shares end 15% lower following plan to hive off media business

Before May 7, the stock, which had a market value of $2.1 billion, was up nearly 60 per cent year to date.
Before May 7, the stock, which had a market value of $2.1 billion, was up nearly 60 per cent year to date.ST PHOTO: GAVIN FOO

SINGAPORE - Singapore Press Holdings (SPH) shares lost 15 per cent on Friday on news of the company hiving off its loss-making media business.

The stock, which was halted from trading before Thursday's announcement, tumbled 23 cents or 12.85 per cent to $1.56 shortly after the Singapore market opened.

The counter – among the five most heavily traded by volume – closed down 27 cents or 15.1 per cent at $1.52 with 92.4 million shares changing hands. 

The stock, which had a market value of $2.1 billion, was up nearly 60 per cent in the year to date before Friday's meltdown.

Mr Terence Wong, chief executive of fund management company Azure Capital, called yesterday’s sell-off “a classic case of buy the rumour, sell the news”. 

“It is a step in the right direction for SPH. Morale has been sinking the past few years following rounds of cost-cutting and retrenchments. With the restructuring, pressure to maximise shareholder value is off. I am for the move.

“As for the share price, I think it has factored in the news.”

Analysts said that once the media business is spun off, SPH will be viewed mainly as a property stock that has been trading at a higher valuation than most other developers in Singapore.

SPH was trading at a 15 per cent discount to its revised stated net asset value (RNAV) of $2.08 per share, which is at a premium to property peers such as CapitaLand, UOL and City Developments. They were trading at discounts to RNAV of 30 to 45 per cent, noted UBS Securities analyst Rachael Tan yesterday.

Under the restructuring plan, all of SPH's media-related businesses will first be transferred to a wholly owned subsidiary, SPH Media Holdings. SPH will provide the initial resources and funding by capitalising SPH Media with a cash injection of $80 million along with $30 million worth of SPH shares and SPH Reit units, and SPH's stakes in four of its digital media investments.

SPH Media will later be transferred for a nominal sum to a newly formed company limited by liability (CLG), an entity which does not have share capital or shareholders, but instead has members who act as guarantors of the company's liabilities.

The CLG will be run on a commercial basis, but all profits made will be reinvested into growing its media business, focusing on its mission. The CLG structure will also allow SPH Media to seek funding from public and private sources.

The Ministry of Communications and Information (MCI) has given its in-principle approval for the shareholding and other relevant restrictions under the Newspaper and Printing Presses Act (NPPA) to be lifted from SPH upon the closing of the proposed restructuring. Among other things, the NPPA restricts shareholders to owning no more than 5 per cent of the company's shares unless given MCI approval.

The transfer of media assets to the CLG is subject to SPH shareholders' approval at an extraordinary general meeting, which will be called in early July. Upon shareholders approval, the restructuring is set to be completed by October.

The separation, which is part of a strategic review announced earlier, is intended to preserve the integrity of SPH's media business - which includes The Straits Times - while allowing shareholders of the company to see better values for their shares over time.

SPH chairman Lee Boon Yang said on Thursday that there is little scope for further cost cuts in the media business without impairing the ability to produce quality journalism.

SPH's media business is expected to continue posting losses. Group operating revenue has halved in the past five years, largely due to a decline in print advertising and subscription revenue, a challenge faced by media companies globally.

Several observers said the market was disappointed, as SPH, rather than being compensated for its media business, will instead inject cash to capitalise the CLG.

The Securities Investors Association (Singapore) said on Thursday that SPH’s upfront capitalisation of $110 million may confound shareholders, “especially since they view this segment as having value or still revenue-generating and can turn profitable over time”.

Retail shareholder Mano Sabnani, who has 20,000 SPH shares, said some shareholders are “shocked that SPH is not only giving away the media business”, it is also putting in $110 million and “transferring it all to a trust for a nominal sum.”

 “The market was expecting a restructuring where the media business that is separated from the SPH group will be listed separately on SGX.”

But several analysts backed the restructuring as it alleviates profit drag from the media business, which is expected to continue posting losses. 

Calling it a “short-term pain, long-term gain”, CGS-CIMB retained its “add” call on SPH. 
Analyst Eing Kar Mei said the restructuring will “give SPH greater financial flexibility to tailor its capital and shareholding structure to seize strategic growth opportunities and free up resources to focus on other businesses”. 

DBS analyst Alfie Yeo noted that a “not-for-profit structure will allow the media business to seek funding from a range of public and private sources with a shared interest in supporting quality journalism.”