SINGAPORE (March 20): UOB KayHian says Singapore Press Holdings should see “significant upside gain” should its stake sale of M1 materialise.

(See also: Three biggest shareholders of M1 mulling stake sale)

However, UOB tells shareholders to expect a small special dividend at best.

“Despite the potential windfall gains, we are less optimistic of a huge special dividend payout from any divestment,” says UOB in a Monday note.

“We think it more strategic for SPH to divert all funding into other avenues that will help earnings in the long run,” adds the research house.

UOB says SPH’s cost of investment in M1 before IPO was $49 million for 367.5 million shares, or 13 cents per share, based on SPH's annual report in 2002.

“Based on current holdings of 124.5 million shares and assuming a transaction price at last traded share price of $2.19,  this implies a gain of $256 million from the sale, representing 96.5% of FY16 net profit,” says UOB.

On Friday, it was reported SPH, Keppel T&T and Axiata Group have jointly appointed Morgan Stanley Asia (Singapore) to assist with a strategic review of their stake in M1.

SPH subsequently released an announcement confirming the news, but cautioned that a transaction may not materialise.

According to UOB, the strategic review by M1’s three biggest shareholders is not a new development.

“The potential divestment of M1 has been in the talks since end of last year, with Axiata previously (and wrongly) flagged by Malaysian news Star Media as being a potential acquirer in Sept 2016,” says the research house.

With talks likely conducted for months and nothing to show for yet, this implied difficulties in finding a buyer, says UOB.

And even if a buyer should surface, it will demand a price that reflects the risk of the current market environment which might not be agreeable with the current shareholders.

Ultimately, with the fundamental outlook for SPH one of structural decline, UOB is maintaining its “sell” with unchanged target price of $3.29.

Shares of SPH are up 3 cents at $3.57.