Despite all the social commentaries, Singapore Press Holdings (SPH) shares have held up well in an otherwise extremely volatile market.

The counter is up 7 per cent this week, even as the broader market pulled back on inflation, interest rate and Covid-19 concerns.

In fact, the stock has gained over 50 per cent from its lows at around $1.10 earlier this year, on the back of speculation about its restructuring.

The big question is, with the company heading towards a critical shareholder vote to demerge its property and media businesses, can this upside be sustained?

Under the plan, SPH would give the not-for-profit media entity - known as a company limited by guarantee (CLG) - $80 million in cash, $20 million in SPH Reit stock and $10 million of SPH treasury shares. This means SPH will give the entity 6.6 per cent of its assets.

SPH will then move on with property assets worth in the region of $4.33 billion.

This gives the company a net asset value per share of $2.08.

Yesterday's closing price of $1.68 translates into a price-book value of 0.8 time.

Is there more upside?

The biggest 120 globally listed real estate operating companies with market capitalisations of over US$1 billion (S$1.3 billion) trade at a median price-book ratio of 1.24 times. If one were to expand this to 140 global real estate developers with a market value of over US$1 billion, the median price-book works out to 0.9 time.

CapitaLand's recently announced restructuring is essentially to lift its valuation to that of global real estate operating companies.

Diverse assets

The common criticism is that SPH's property portfolio is a hodge-podge of commercial real estate, residential projects, nursing homes, purpose-built student accommodation and digital assets.

However, this diversity also renders a certain stability to its earnings.

That said, management will still have to unveil its strategic plan on how it will manage the business and outline a vision to unlock shareholder value.

Not that they have not tried, though. In 2019, plans were under way to list the student accommodation assets. Then Covid-19 struck.

Meanwhile, there has been a noticeable increase in institutional buying of SPH, which publishes The Straits Times among other titles.

Since the announcement of the restructuring last week, SPH has been the recipient of $23 million in net institutional and net proprietary buying. This has brought the total net institutional and net proprietary inflows in SPH shares for this year to May 18 to $108 million.

SPH has seen the fifth highest institutional and net proprietary inflows so far this year, just behind DBS, OCBC Bank, UOB and Yangzijiang.

It began the year ranking outside the 40 leading stocks by daily turnover. Currently SPH ranks within the top 20 stocks, at No. 16.

In short, activity has really picked up.

So what is happening here?

Before last week, the stock rose on expectations of a restructuring. Now it seems driven by the announcement.

Growth potential

From an investment point of view, restructuring is the most efficient way to change the profile of a company. In SPH's case, the demerger is seen as having the potential to tilt it towards becoming more of a "growth" stock.

A Singapore Exchange study based on data up to June 30 last year showed that out of 106 stocks, SPH ranked 94th in comparative "growth" metrics, whereas SPH Reits ranked 56.

The two growth metrics used by FactorResearch for selecting stocks with growth factor exposure included three-year sales-per-share and earnings-per-share growth. In SPH's case, the study showed clearly that net profit of the media business was declining to new lows, even as the longer term net profit of the property segment was growing.

Indeed, SPH's media ad revenue has been falling steadily since the 2018 financial year.

The company posted a first half pre-tax loss of $9.7 million for the 2021 year. The full-year loss for media could be in the region of

$30 million to $40 million. And over the next two years, it could lose another $100 million if the current trend holds.

In short, the $110 million handout, together with its two purpose-built buildings, would enable the CLG to carry on for two more years. After that, it would need to seek a public-private funding formula.

So institutional investors may be calculating that a 6.6 per cent haircut to demerge from this challenged business is a price worth paying.

But given the 5 per cent maximum shareholding limit under the Newspaper and Printing Presses Act (NPPA), they cannot simply "load up" on SPH.

Could they be picking up the stock in anticipation of opportunities to be had if and when shareholders approve the demerger?

Possibly.

On a sum-of-parts basis, the valuation of the listed property company is in the region of about $2.40 to $2.50 per share.

As I have pointed out before,

if SPH shares fall drastically below what is deemed fair value, it could become an acquisition target.

Also, over time, the company could attract strong cornerstone investors who can now hold bigger stakes, sans NPPA.

Meanwhile, analyst price targets for the stock vary from $1.92 to $2.41 - significantly above the current trading price.

One more thing.

SPH has always been an attractive dividend play, though these have fallen from 18 cents in 2016 to 12 cents in 2019.

Hiving off the media business can boost the prospects of continued dividend growth. SPH Reits, which is 66 per cent owned, announced a dividend per unit of 2.4 cents in March, and revenue from SPH's student accommodation business grew by 24 per cent in the first half of this financial year.

Whichever way one slices or dices this, from a purely objective angle, the restructuring seems to be the best way for SPH to take off again, free of the media albatross around its neck. At least institutional investors seem to think so.

Of course, all this assumes the deal will be approved by shareholders. If it is not, the stock could sink back to its lows.