SINGAPORE (Apr 3): UOB KayHian is upgrading Singapore Press Holdings (SPH) to “buy” with a 2.5% higher target price to $2.82, to account for the 6% rally of SPH REIT.

UOB says the resilient assets in SPH’s portfolio and efforts by the new management to expand its defensive business have been underappreciated.

Capital efficiency is improving given the disposal of low-yielding assets for higher-yielding ones.

In addition, SPH’s 2019F yield of 4.5% is higher vs the STI’s 4.1% after the recent selldown.

Last Sept, SPH acquired its first student accommodation portfolio of 14 assets in the United Kingdom, marking its first foray into a scalable and defensive business which is counter-cyclical in nature.

This is becuse student enrolment typically increases in the event of an economic slowdown and a weaker labour market as people look to upgrade their skills or stay in higher education for longer.

And despite the uncertainty over Brexit talks, UK universities experienced record numbers of international student applications for full-time undergraduate courses in the academic year of 2019.

This is supported by international student applicants from China which saw a 33% increase y-o-y, with EU student applications growing by 1% y-o-y.

While Brexit concerns for EU students funding and research initiatives still linger, the sector looks to be resilient with a continued strong demand.

“This bodes well for SPH’s property diversification strategy following the Mayflower acquisition in Sep 18,” ,” says lead analyst Lucas Teng in a Wednesday report.

Meanwhile, contribution of operating profits from the media business segment has been on a decline, from 55% in FY15 to 32% in FY18. Acquisitions in the student dorm space can help cushion the fall of the traditional print business.

Since the new CEO and CFO took over, Teng says he is starting to see improvement in SPH’s capital efficiency from several capital recycling exercise.

These included the disposal of its treasury and investment portfolio of $189 million that generated only around 4% yield in FY18, and acquisition of accommodation assets for $321 million that generates an attractive 6.3% net yield, which is further amplified by the low interest rate in UK.

As at 1.05pm, shares in SPH are currently trading at $2.43 or 19.6 times FY20F earnings.