On Sunday evening, SPH announced that it is exploring a REIT listing on the SGX Mainboard. We believe the REIT would likely be a Singapore focused retail mall trust, with Paragon and Clementi Mall being injected and Seletar Mall positioned as a pipeline asset. A key implication: we could see significant divestment gains, and consequently a special dividend and/or a distribution in specie of REIT units to shareholders. Assuming SPH retains a 51% stake in the REIT, we estimate potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share. We upgrade the stock to a BUY rating with a fair value estimate of S$4.94. We see a particularly attractive risk-reward proposition currently. Downside is likely capped given a dividend yield of 5.4% here, while a significant re-rating is likely given potential near term catalysts such as a special dividend, and over the longer term, management’s further execution on its retail mall strategy.
A potential retail REIT listing
On Sunday evening, SPH announced that it is exploring a REIT listing on the SGX Mainboard. We believe the REIT would likely be a Singapore focused retail mall trust, with Paragon and Clementi Mall being injected and Seletar Mall positioned as a pipeline asset. A key implication: we could see significant divestment gains, and consequently a special dividend and/or a distribution in specie of REIT units to shareholders. Assuming SPH retains a 51% stake in the REIT, we estimate potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share.
Retail property strategy to drive long term re-rating
In our view, SPH’s share price still mainly reflects a declining newspaper cash-cow and does not fully value its growing retail mall business. A potential REIT listing would, over the short term, result in the share price rising to reflect existing malls’ market values. Over the mid to long term, we expect to see meaningful re-rating as management further executes on its retail property strategy. We see three key factors pointing to this scenario: 1) management’s clear focus on growing its retail property business; 2) the group’s now mature capabilities in mall development and management; and most importantly 3) a war-chest of up to S$2.5b in capital and debt headroom.
Newspaper business decline likely relatively benign
We also re-evaluated the newspaper business critically and believe that its earnings will decline at 1%-2% p.a. over the long term – a relatively benign rate. This is mostly due to margin pressures as management aggressively defend circulation numbers.
Upgrade to BUY - attractive risk-reward here
We upgrade the stock to a BUY rating with a fair value estimate of S$4.94. Currently, we see a particularly attractive risk-reward proposition. Downside is likely capped given a dividend yield of 5.4% here, while a significant re-rating is likely given potential near term catalysts such as a special dividend, and over the longer term, management’s further execution on its retail mall strategy.
On Sunday evening, SPH announced that it is exploring a REIT listing on the SGX Mainboard. We believe the REIT would likely be a Singapore focused retail mall trust, with Paragon and Clementi Mall being injected and Seletar Mall positioned as a pipeline asset. A key implication: we could see significant divestment gains, and consequently a special dividend and/or a distribution in specie of REIT units to shareholders. Assuming SPH retains a 51% stake in the REIT, we estimate potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share.
Retail property strategy to drive long term re-rating
In our view, SPH’s share price still mainly reflects a declining newspaper cash-cow and does not fully value its growing retail mall business. A potential REIT listing would, over the short term, result in the share price rising to reflect existing malls’ market values. Over the mid to long term, we expect to see meaningful re-rating as management further executes on its retail property strategy. We see three key factors pointing to this scenario: 1) management’s clear focus on growing its retail property business; 2) the group’s now mature capabilities in mall development and management; and most importantly 3) a war-chest of up to S$2.5b in capital and debt headroom.
Newspaper business decline likely relatively benign
We also re-evaluated the newspaper business critically and believe that its earnings will decline at 1%-2% p.a. over the long term – a relatively benign rate. This is mostly due to margin pressures as management aggressively defend circulation numbers.
Upgrade to BUY - attractive risk-reward here
We upgrade the stock to a BUY rating with a fair value estimate of S$4.94. Currently, we see a particularly attractive risk-reward proposition. Downside is likely capped given a dividend yield of 5.4% here, while a significant re-rating is likely given potential near term catalysts such as a special dividend, and over the longer term, management’s further execution on its retail mall strategy.
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