SPH Has Surged 80% in the Last Six Months: Is There Room for More Gains?

2021-04-28     thesmartinvestor
SPH Has Surged 80% in the Last Six Months: Is There Room for More Gains?

Many companies have enjoyed a strong surge in demand in their latest quarter.

Their share prices have also risen in tandem with this recovery.

Among the blue-chip companies, Singapore Press Holdings (SGX: T39), or SPH, has surprised investors with an 80% share price gain in just six months.

The share price of the media conglomerate closed at a 52-week low of S$0.99 on 30 October 2020 but has since rebounded strongly to close at S$1.78.

SPH had just released its fiscal 2021 half-year (1H2021) results ended 28 February 2021 a while ago.

The group reported improved earnings and also doubled its interim dividend.

With so much optimism surrounding the media company, investors may be wondering if there’s still potential for more share price gains?

The bright spots in the media division

SPH’s problems with its media division are widely known.

The group reported that print advertisement revenue continued its structural decline as more people turned to digital media to consume information.

Revenue from this division fell from S$176.6 million in 1H2018 to S$89.6 million in 1H2021.

Despite the drastic fall, there were bright spots amidst the bad news.

Digital circulation continues to grow at around 20% year on year, surpassing the group’s print circulation numbers.

Digital circulation revenue has also jumped 40.3% year on year to S$18.1 million and has nearly tripled over the last three years.

Circulation revenue from the digital segment now makes up 31.6% of total digital revenue, up from just 23% in the same period last year.

The good news is that the digital segment of the media division is gaining traction, though it may still take time to replace revenue lost from print circulation and advertisements.

A resilient property portfolio

But SPH is more than a pure media company.

In the last decade, the group has been beefing up its property and asset management arms.

These are now parked under its retail and commercial division.

SPH spun off its retail portfolio with Clementi Mall and Paragon into SPH REIT (SGX: SK6U) back in 2013.

Along the way, the REIT acquired the Rail Mall in Bukit Timah Road in 2018, a 50% interest in Westfield Marion, a shopping centre in Adelaide, and an 85% interest in Figtree Grove, a shopping mall in New South Wales.

SPH also owns The Seletar Mall which saw its net profit surge by 25% year on year.

These assets have been a boon for SPH as they contribute stable rental income even through the pandemic.

SPH REIT delivered profit before tax of S$68.5 million for the half-year, down from S$76.5 million in 1H2020 but still higher than the level chalked up two years ago.

The asset management arm even managed to grow profit before tax by 8% year on year due to higher management fees from Westfield Marion.

It may take time for these properties to recover back to pre-COVID levels, but in the meantime, they act as a bastion of strength for the group by providing a stable base of earnings.

Pivoting to PBSA and Aged Care

The more interesting aspect of SPH is its foray into two new areas — that of purpose-built student accommodation (PBSA) and aged care.

For the first time, the group has separately disclosed its PBSA assets as a separate segment in its earnings report.

And its numbers are impressive, to say the least.

The segment generated S$22.4 million of profit before tax on revenue of S$35.3 million, for a profit margin of around 63.5%.

This is a very far cry from the margin on its media division which stood at a dismal 1.6%.

Revenue from PBSA made up just 8.5% of SPH’s total revenue, so it is not quite a needle mover yet.

However, investors should note that the segment’s revenue climbed 24.2% year on year despite the pandemic, demonstrating the resilience of this asset class.

Aged care represents yet another promising growth area for SPH as Singapore and most of the world faces a silver tsunami.

This growing segment consists currently of Orange Valley nursing homes in Singapore and Japan aged care assets, together worth around S$192 million as of 28 February 2021.

These assets generated a small profit before tax of S$0.3 million for the group, and are also resilient to crises.

With SPH’s commitment to growing its PBSA and aged care portfolio further, investors could be hearing more good news on this front.

Get Smart: Unlocking value

It seems the optimism over SPH was justified after all.

Not only does the group own a portfolio of stable, income-generation investment properties, but it has also begun diversifying its revenue away from media by acquiring PBSA and aged care assets.

Furthermore, the group announced in late March that it was undertaking a strategic review to explore options to unlock value for shareholders.

CapitaLand Limited (SGX: C31) had recently announced a major restructuring to privatise its development arm and separately list its investment division.

And Keppel Corporation Limited (SGX: BN4) is undertaking a strategic review for its offshore and marine division to split it into three separate companies.

SPH, too, may explore the possibility of breaking up its various divisions.

Meanwhile, investors can continue to enjoy the higher dividends that are supported by healthy free cash flow generation.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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