UOB KayHian remains positive as SPH turns to student accommodation to arrest flagging media business

UOB KayHian remains positive as SPH turns to student accommodation to arrest flagging media business

Stanislaus Jude Chan
23/04/19, 12:05 pm

SINGAPORE (Apr 23): Despite continued weakness in its core media business, UOB Kay Hian is staying positive on Singapore Press Holdings (SPH) on the back of its foray into the student accommodation segment.

SPH last week announced it has acquired a portfolio of three purpose-built student accommodation (PBSA) assets in the UK for £134 million ($237 million).

See: SPH expands UK student dorm portfolio with $237 mil acquisition

The assets span three cities in the UK – Southampton, Sheffield and Leads – and has a total capacity of 1,243 beds, bringing SPH’s total portfolio to over 5,000 beds.

The acquisitions also take SPH’s total PBSA assets under management (AUM) to over $600 million – establishing the group as a leading player in the UK.

“The PBSA acquisitions serve to arrest the earnings decline arising from the media business, which have fallen by $21 million over 2017-18,” says lead analyst Lucas Teng in a report on Apr 18.

“SPH’s current acquisitions in PBSA amount to slightly above $20 million in net profits and growth may be expected upon further acquisitions,” he adds.

The way Teng sees it, SPH is poised to extract greater economies of scale on the back of an enlarged platform.

“SPH’s cash-yielding acquisitions will enhance recurring income for the group, now more so with its sizeable asset portfolio. Overall, the recent acquisitions are trending towards selective regions where the corresponding universities are dependable upper-mid-tier institutions with robust demand,” he says.

The analyst points out that Leeds and Southampton have slightly higher-than-average rental rate growth, with rental growth rates of 2.7-6.5% in 2018. At the same time, the Southampton asset could also capitalise on a low supply pool in the region, with the developmental pipeline of beds forming only 11% of current supply.

See: SPH posts 26% fall in 2Q earnings to $29.7 mil on lower revenue, higher costs

“On a pro-forma basis, the acquisition adds an estimated $7.4 million to SPH’s net earnings,” Teng says. “Assuming similar debt levels of 60% for the acquisition, this would raise our net profit estimates slightly for FY19 and FY20 to $210 million (+1%) and $204 million (+2%) respectively.”

“We remain positive on the group’s transitional strategy into a defensive portfolio, which is largely underappreciated,” he adds.

UOB Kay Hian is keeping its “buy” call on SPH with a slightly higher target price of $2.86, raised from $2.82 previously.

As at 11.59am, shares in SPH are trading 1 cent higher at $2.49. This implies an estimated price-to-earnings (PE) ratio of 18.9 times and a dividend yield of 4.5% for FY19F.

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