Better prospects for Singapore Press Holdings’ (SPH) property assets, such as the separately-listed SPH REIT, have prompted UOB Kay Hian Research analyst Lucas Teng to upgrade his rating for the stock to ‘buy’ with a higher target price of $1.74 from $1.22 previously.
His increased target price factors in higher dividend payout ratios for FY2021 to FY2023 ending August as well as a lower conglomerate discount assumption of 10% from 30% previously.
Teng notes that SPH REIT’s 1HFY2021 ended February distribution per unit (DPU) grew 45% y-o-y to 2.44 cents. He believes that retail operations have largely stabilised and as such, there is potential for dividends to be reinstated to a larger extent at SPH’s level after FY2020 saw SPH declare dividends of only 2.5 cents per share to conserve cash.
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“Assuming an annualised DPU of 4.8 cents for SPH REIT, we estimate that this translates to almost 5.5 cents of dividends for SPH, which is a healthy yield of 3.7% at current price,” he says.
In addition, Teng anticipates improved demand for SPH’s student accommodation assets, which total 8,000 beds. Student applications for UK universities grew 8.4% y-o-y as of January on the back of demographic shifts and a tough job market. It marks a significant increase from 1.2% growth the previous year.
Teng also points out UK universities have been allowed to resume in-person teaching for practical-based subjects from March 8, while vaccination rates in the country have outpaced most nations, which is a positive step in allowing the return of international students.
The combination of dividends from SPH REIT and higher student accommodation demand underpin Teng’s forecast of 1HFY2021 core earnings for SPH of $50 million, up 17% h-o-h.
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Meanwhile, Teng also notes certain fair value gains could be recognised including the recent listing of South Korean e-commerce firm, Coupang, in which SPH has a 0.1% stake. In addition, shares of iFAST Corporation, in which SPH holds a 15% stake, has surged from 80 cents last March to more than $6 currently.
As at 4.07pm, shares in SPH are up 1 cent or 0.67% higher at $1.51.