Singapore Press Holdings (SPH) used to be a dividend investor’s dream – a consistent dividend payer in a defensive sector. That all changed with the advent of online advertising. Faced with a competitor that offered advertisers better return on investment, advertising revenues at traditional media formats like SPH’s newspapers plummeted. In response to another disappointing quarter, SPH returned to its 52 week low recently. Having not done much research and valuation work on SPH in the past, I thought I’ll do some now to see if there is any value in this company.
Background
SPH management has been slowly evolving the business, moving away from traditional print media into other businesses. Currently there are about 4 business segments:
- Core media
- Property
- Treasury and Asset Management
- Others
Proposed Valuation Method: Sum of the Parts
Based on this diverse list of business segments, it may be appropriate to value the company using the Sum of the Parts (SotP) valuation method. This means valuing each segment and part of the company as if it were a standalone business and then combining the value of each part to understand the overall value of the company (thus the name of the method). This method is useful for companies that have diverse business types that have different valuation metrics associated to them.
SotP method can be complicated as you need to divide up the company’s assets among its various business units and have to be careful to avoid double counting. The company also may not classify each asset and liability according to its business units, so there is a need to do some digging and alternative steps to try and make an educated guess at the value of each part.
Based on my read through of the annual report, here are the core businesses/assets that have some discernible value:
- Core media business
- Properties – Significant interests as follows:
- 69% of SPH REIT
- 70% of Seletar Mall
- 50% Joint venture for Bidadari Development (Woodleigh Residences and Mall)
- UK Student Accommodation portfolio
- Aged Care business (Orange Valley)
- Associates:
- 20% of Konnectivity Pte Ltd – M1
- 20% of Mindchamps
- 31% of Perennial Chinatown Point
- Asset management business
- Others – Intangibles, Debt, Cash
That is quite the list of items to value. Let’s go through this step by step.
1) Core media business valuation
The core media business is tough to value as declines in advertising revenues has not been arrested yet. Here is a summary of revenue changes in the media business segment over the past 8 quarters:
| Quarter | Media Revenue QoQ % Change |
| 4Q 2017 | (5.2%) |
| 1Q 2018 | 0.01% |
| 2Q 2018 | (10.5%) |
| 3Q 2018 | 7.9% |
| 4Q 2018 | (5.7%) |
| 1Q 2019 | 2.4% |
| 2Q 2019 | (17.3%) |
| 3Q 2019 | 7.1% |
As you can see, QoQ declines have generally outpaced QoQ increases. As such, it is difficult to argue that the current business is in its steady state yet.
Based on the 3Q results, SPH is on track to earn about 69.5m profit before tax in 2019 (by extrapolation). Using a conservative PE of 8.0 (as the business is not in steady state yet), this implies a valuation of about $556m for the media business.
2) Property valuation
SPH owns a surprising number of properties.
The tricky part is to identify assets used by other business segments (Media business, Aged Care, for eg) and ignore them as they are valued as part of their respective segment valuations. I have also chosen to ignore the value of some of the smaller commercial and residential properties as they have minimal impact on the valuation.
After sifting through the list, here are the more salient items worth valuing.
a) SPH REIT interest
The value of this item is relatively straight forward as it is simply a multiplication of the number of SPH REIT units it owns and its current unit price. Here is a summary of SPH REIT data from its latest quarter results:
- Current units outstanding: 2,586,531,833 units
- 69% ownership: 1,784,706,965 units
- SPH REIT closing price 22 July 2019: $1.07
- SPH REIT interest value: $1,909.6m
Of course, this would likely grow in value as SPH REIT currently has very low gearing and has a lot of debt headroom to pursue acquisitions. However, for conservatism, I shall leave it as it is, given the recent run up in unit price.
b) Seletar Mall interest
Seletar Mall is carried on the books at Fair value, as such it is simply plugging in the value disclosed in the financials. This is disclosed to be $488m in the 2018 annual report. There is no further valuation information available at this time.
As such, a 70% interest in the property implies a value of $341.6m.
c) Woodleigh Residence and Mall JV value
There is limited visibility over the value of this item other than some of the costs involved. For now, let’s assign no value to this item.
d) UK Student Accommodation Portfolio value
The portfolio of UK student accommodation assets were purchased in the past financial year. This involved 2 acquisitions. As these purchases were conducted in the past year, it is fair to assume the cost of acquisition is at fair value. If any of the acquisitions gave rise to goodwill, I will adjust it downwards later in my SotP valuation.
Based on the various announcements found on the SPH website here and here, the UK Student Accommodation portfolio is valued as follows:
| Acquisition | Value |
| Initial PBSA acquisition | GBP180.5m |
| Leeds, Sheffield and Southampton PBSA | GBP133.7m |
| Total PBSA value | GBP314.2m |
| Total PBSA value (SGD) translated at 1:1.70 | SGD534.1m |
3) Aged Care business valuation
In 2017, SPH purchased Orange Valley Healthcare for approximately $164m. With reference to the 2017 Annual Report, this comprises of $52.4m of identifiable assets (ex-intangibles and cash), $79m of goodwill, $25m of intangibles (trademarks etc) and cash of $6.8m.
Orange Valley has not been performing well since acquisition. In fact, in the latest quarter results, the company had to take an impairment charge of $21.5m on its Aged Care business. While the company does not break out the specific revenues and profits of the Aged Care business, it is safe to say that its value is minimal.
For the purposes of my SotP valuation, I shall assign it no value.
4) Associates
There are a couple of associates that were acquired by SPH over the years.
a) M1 stake
This is newest associate on the block for SPH. After acting in concert with Keppel Corp to take M1 private, it now holds on to 20% of Konnectivity Pte Ltd, a joint venture with Keppel that holds their M1 shares.
The tricky part is figuring out M1’s value now that it is now privatised. The offer from Keppel Corp / SPH was for $2.06 per share prior to closing. However, the share price of M1 immediately prior to the announcement of the privatisation was about $1.60.
For this valuation, let’s assume a market value of $2.06, the takeover price. M1 would be valued at $1,900m. This implies a proportionate value of $380m.
b) Mindchamps stake
Mindchamps is publicly listed so its much simpler to value.
- Share price: $0.62
- Share float: 241,600,000 shares
- Market cap: $149,792,000
- 20% share: $30m
c) Chinatown Point stake
For simplicity, I’ll use the book value of Chinatown Point disclosed on the 2018 Annual Report – $52m. This is because the property is conceivably valued at fair value. Also as an associate, the asset is already accounted for as a proportionate share of the value of the property.
5) Asset Management business
SPH is looking to grow this business. This is seen from their desire to exercise an option to acquire 20% in Prime US REIT’s REIT manager. As such, this business is likely to continue to grow in the future. For now, we will disregard the potential contribution of Prime US REIT management fees due to lack of clarity and focus on the main revenue source for the asset management business – SPH REIT.
Based on the latest SPH REIT 2018 results, the amount of management fees from SPH REIT is about $16m. Unfortunately, the REIT has chosen to not disclose the salaries of their key management, which I would imagine is the key cost to generating this revenue.
I tried shopping around the other Singapore focused retail REITs – namely Starhill Global REIT, Capitaland Mall Trust (CMT) and Frasers Centrepoint Trust (FCT) – to gauge the market rate for key management remuneration.
Starhill adopted the same approach as SPH REIT and declined to disclose their key management remuneration. CMT and FCT disclosed their key management remuneration as follows:
| REIT | Assets Under Management | Key Mgt Remuneration |
| Capitaland Mall Trust | $10,361,151 | $2,563,267 |
| Frasers Centrepoint Trust | $2,815,060 | $2,133,542 |
As remuneration doesn’t seem to be linked to size of REIT, let’s assume SPH pays approximately $2m in salaries to its staff. This implies $14m of recurring earnings from its asset management business. As this income is fairly stable and recurring in nature, investors can conceivably be willing to pay up to 15x P/E for this income.
However, as a conservative estimate, let’s assume 10x P/E for this income, implying $140m of value for this business.
6) Intangibles, Debt and Cash
We’re in the home stretch now, with only some minor details to handle – Intangibles, Debt and Cash.
a) Intangibles
Intangible assets mainly relate to:
- Goodwill associated with the various acquisitions the company has made over the years (Orange Valley Healthcare for example)
- Trademarks, licenses, technology and mastheads.
For goodwill, given the propensity for the company to write down its goodwill, I will assign no value to it. As for trademarks, licenses, technology and mastheads, given the struggles of the media business, I will assign no value to it as well, although I do not doubt there is some value in those assets.
b) Debt
As the debt is a mix of SPH REIT, Seletar Mall and SPH debt, there is need to disentangle these to find out the debt that is specifically attributable to SPH. This can be done by taking SPH’s total debt, remove SPH REIT’s total debt (we have already valued SPH REIT independently which includes this debt) and Seletar Mall’s proportionate debt attributable to non-controlling interests.
| Description | Source | Calculation (if necessary) | Amount (m) |
| SPH total debt | 3Q2019 Results | N/A | 2,177.1 |
| Less: SPH REIT debt | 3Q2019 Results | N/A | (1,093) |
| Less: Seletar Mall NCI proportionate secured debt | 2018 Annual Report | 300 x 30% | (90) |
| Debt attributable to SPH | 994.1 |
c) Cash
Cash mainly contains largely a mix of SPH REIT and SPH’s cash. As such, its simply an exercise in deducting the cash in SPH REIT. Similar to SPH REIT’s debt, the cash has already been valued as part of SPH REIT’s valuation and thus should be excluded.
From SPH REIT’s Q3 2019 results, we can see that they currently have $43.5m of cash. SPH has $206m. As such, total cash attributable to SPH would be 206 – 43.5 = 162.5m
Valuation Summary
After going through all that work, let’s tabulate our valuation results.
| Item | Valuation Method | Value (m) |
| Core Media Business | 8x 2019 P/E | 556 |
| SPH REIT | Market Value 22 Jul 19 | 1,909.6 |
| Seletar Mall | 2018 Annual Report BV | 341.6 |
| Bidadari Development | Little visibility | NIL |
| UK Student Accommodation Portfolio | Acquisition value | 534.1 |
| Aged Care business | Continued impairment | NIL |
| Associate: M1 | Last known market value | 380 |
| Associate: Mindchamps | Market value | 30 |
| Associate: Perennial Chinatown Point | 2018 Annual Report BV | 52 |
| Asset Management Business | 10x 2019 P/E | 140 |
| Intangibles | Continued write downs | NIL |
| Debt | Adjusted 3Q2019 debt | (994.1) |
| Cash | Adjusted 3Q2019 cash | 162.5 |
| Total value | 3,111.7 | |
| Total shares outstanding (excluding treasury shares) | 1,595.04 | |
| SotP Value | $1.95 |
Some thoughts
I was honestly quite alarmed when I computed this valuation as I thought I made a mistake somewhere. After rechecking my work, I think there are several areas where I used significant conservatism in my calculation:
- Most notably, I assigned no value to the Bidadari Development. This is likely a huge driver of value that I’ve not included in my computation due to lack of information.
- I looked around some of the analyst reports out there to see the prospective value of this development.
- The CIMB and UOB Kayhian analysts assigned similar RNAV of about $600m to the development. This gives potentially up to $0.37 of value per share to the company.
- That said it is probably better to assign a discount to RNAV for the valuation. The CIMB analyst assigned a 40% discount ($0.22 added value) while the UOB Kayhian analyst assigned a 25% discount ($0.28 added value).
- Secondly, I assigned a low P/E to Core Media Business of 8x P/E. If you used a more normal P/E like 10x P/E, you’ll add about $0.09 to the valuation. That said, I do not think this is appropriate due to continued difficulties in the business.
- Thirdly, I assigned a low P/E to the Asset Management Business of 10x P/E. This could conceivably be increased to 15x P/E, which would add another $0.04 to the valuation.
Using these figures, you could conceivably pump up the valuation to $2.30 or more. If a 20% margin of safety is applied to this value, you get a entry price of $1.84, which is close to my original valuation. This implies another 18% drop before I should consider buying the company.
Yikes. I guess I’ll still have to wait some more before considering buying this counter.
Disclosure / Disclaimer: I own no shares in SPH at the point of writing. Also, I am an amateur attempting to value a complex company with whatever limited information I can gather. I am bound to screw up somewhere as a result. I therefore welcome any comments on this valuation.
The information presented is for your information only and does not constitute a call to buy or sell securities. Please do your own due diligence before deciding whether to take action or not. Where necessary, please consult your financial advisor before acting on any information.
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