■ We upgrade SPH to Add with higher FY19-20F EPS and TP of S$2.85. Further upside could stem from media stabilising and higher asset management income.
■ Management is seeking new income source in overseas property asset management, for which we forecast 8% cash-on-cash returns, on average.
■ We expect the upcoming property sales launch to boost FY19-20F earnings by S$8m11m, based on an estimated ASP of S$1,850 psf.
■ The 3QFY18 results are due to be released on 11 Jul. We forecast that core PATMI (S$52m-57m) will be stronger qoq (on seasonality) but lower yoy by 14-20%.
Upgrade from Hold to Add, with higher FY19-20F EPS
We raise our FY19-20F EPS by 5.6-6.2%, mainly to reflect higher sales contributions from the upcoming Woodleigh Residences launch, and investment income from property asset management. Our SOP-based TP thus rises to S$2.85. We upgrade from Hold to Add as we think its weak media outlook is largely priced in, with near-term earnings recovery from property sales and diversification into overseas asset management. Downside risks are poor overseas execution and worse-than-expected ad spending.
Media pessimism priced in
Unlike previous quarters of double-digit rates of decline, SPH’s 2QFY18 media topline fell 7.4% yoy to S$156m and met our full-year expectations. We believe the deteriorating media operations are showing signs of moderating, and the pessimistic outlook has been priced in at the current level of 10x 12M forward P/E. As its focus shifts towards digitalfirst and roll-out of new initiatives takes form, these could help increase digital contribution to overall media revenue and arrest its earnings decline in the medium term.
Monetising cash via new asset management
With a 33% net gearing and S$653m liquid assets as at end-2QFY18, SPH has the flexibility to optimise its balance sheet for higher returns. It is on the lookout for asset management opportunities in overseas property markets, with healthcare (retirement homes) and education (student housing) as its primary focus. Given its active pursuit of new income streams, we forecast SPH to secure a project size of S$500m by FY19F; with 8% average cash yield to add S$10.4m-17.3m of profits over FY19-20F.
Leaning on property
SPH’s latest mixed development in Bidadari broke ground on 28 Mar, and is scheduled to commence sales launch in Sep. With its accessibility, mid- to high-end positioning and Japanese attributes, a good take-up rate for the 680 residential units would translate into FY19-20F profit contributions of S$8m-11m, based on estimated average selling prices of S$1,850 psf. This could mitigate its structural media weakness. The retail portion of The Woodleigh Mall development will be retained for future recurring income.
Having recently completed its first rental renewal cycle with better tenant mix and removal of shareholder overhang at United Engineers (owns 30% of Seletar Mall), we think a potential injection of Seletar Mall into SPH Reit could be on the horizon. Assuming a 20-100% dividend payout, the estimated gross proceeds of S$132m from SPH’s 70% stake divestment could translate into a special DPS of S$0.02-0.08, on top of its 15Scts annual DPS. We think a FY19F dividend yield of 6.6-8.9% would be attractive.
Source : CGSCIMB Research