Singapore Press Holdings (KimEng)

Event:
Two failed bids at recent land tender exercises could prompt the Singapore Press Holdings (SPH) 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 satisfy its investment criteria. On our part, we prefer SPH to focus on boosting its digital media revenue stream and returning surplus cash to shareholders. At FY Aug12F PER of 15x and a sustainable dividend yield of 6.4%, the stock still warrants a BUY rating. However, our target price is lowered to $4.60, from $4.68 previously.

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 (GLS) 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.