Singapore Press Holdings should focus on digital media, not property:Kim Eng

Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings to become more aggressive in seeking future projects. Or, it could just put property acquisition plans on the back burner as there are fewer sites that meet its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. We also identify a revaluation boost for Paragon as a potential  catalyst, even though the chances of it occurring are still remote for now. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating but at a lower target price of $4.60.

Our View

In  May  this  year  and  September  last  year,  SPH  failed  to  secure  the  White Site  at  Boon  Lay  Way  and  the  mixed‐used  site  at  Bedok  Town  Centre, respectively. Fewer commercial plots are now available with nearly all sites on the Confirmed List of the 2H11 Government Land Sales Programme slated  for  residential  use  and  a  White  Site  on  the  Reserve  List  catering  to Grade  A  office  use.  With  neither  segment  the  focus  of  SPH’s  property development division, we rule out land acquisition as a near‐term catalyst.

The  group’s  commercial  properties  appear  to  be  doing  well.  We  expect Clementi Mall, which became fully operational last month, to achieve gross rental  revenue  of  $32.5m  pa  by  FY  Aug12.  Paragon,  on  the  other  hand,  is benefitting  from  positive  rental  reversions.  If  market  buzz  is  true  that Australian  property  group  Lend  Lease  is  seeking  to  divest  its  stake  in  the neighbouring  retail  mall, 313@Somerset,  at  $4,400‐4,800  psf  net  lettable area, Paragon’s valuation may get a boost. It currently is valued at around $3,200 psf compared to Ion Orchard whose valuation stands at $4,169 psf.

Action & Recommendation

SPH’s  core  media  and  retail  mall  rental  businesses  will  continue  to  hinge  on domestic  consumption  growth.  The  plan  to  use  Apple’s  and  Google’s subscription  platforms  to  boost  its  subscription  base  is  positive  for  the  longer term.  The  return  of  surplus  cash  as  dividends is  another  potential  catalyst. However,  a  key  risk  is  that  management  might  bid  aggressively for  property projects. Maintain BUY with target price lowered to $4.60