On 6 May 2021, as part of the strategic review announced previously, Singapore Press Holding (SPH) will be transferring its media business to a not-for-profit entity amidst the ongoing challenge of falling revenue from its media segment.
This is significant news not only for its shareholders but also for Singaporean as these would have an impact on journalism, be it good or bad, going forward.
In this article, we will break down what is this deal all about and evaluate the business of SPH without its media entity.
What you may not know about SPH’s businesses
Singapore Press Holdings Ltd is one of Singapore’s news organizations, its core business is in the publication of newspapers, magazines, and books in both print and digital editions. It also owns other digital products, online classifieds, radio stations and outdoor media.
These are well-known facts, but did you know SPH has other non-media businesses, which make up close to half of its revenue?
These businesses include property investing, integrated development, Purpose-Built Student Accommodation, aged care and many other more. (We will discuss this in greater detail below.)
SPH’s restructuring
As part of the restructuring exercise, SPH will be transferring its entire media-related businesses to a newly formed public company limited by guarantee (“CLG”). This will be done in stages:
- SPH will transfer its entire media-related business including relevant subsidiaries, employees, News Centre and Print Centre along with their respective leaseholds, as well as all related intellectual property and information technology assets to a newly incorporated wholly-owned subsidiary, SPH Media Holdings Pte Ltd (“SPH Media”).
- To capitalize SPH Media with initial resources, SPH will provide a one-time injection of funds to it (akin to a “divorce fee”). This includes a cash injection of $80 million, $30 million worth of SPH shares and SPH REIT units (Approximately 23.4m SPH REIT units, valued at S$20m and 6.9m SPH shares, valued at S$10m), as well as SPH’s stakes in four of its digital media investments.
- After meeting various conditions, including completion of restructuring exercise and shareholder approval, SPH will transfer SPH Media to the new CLG* for a nominal sum.
- Post completion, this newly formed CLG will become the sole owner of SPH Media.
*More information about the newly formed CLG will be announced at a later date.
What is a company limited by guarantee (CLG)?
A CLG is an entity that does not have shareholders nor share capital. Instead, it is formed by a group of members to carry out non-profit making activities that usually have some public or national interest. The members of the CLG will then act as guarantor and oversee the company operations.
As CLGs does not have any shareholders, it does not have to distribute its profits (if any). Instead, any profit made would be reinvested back into the company which allows it to continue functioning and grow. Fun fact, National University of Singapore is a CLG.
Rationale for this restructuring
The unprecedented disruption to the media industry was cited by SPH as the reason for this restructuring.
While SPH has grown its digital subscription and digital advertising, it has been unable to offset the decline in print advertising and print circulation revenue. As a result, SPH Media’s operating revenue has been declining over the past 5 years.
Looking at the past 17 years, the 5 years of loss was an understatement. In fact, SPH media revenue has been declining since 2012. In 2020, it has gotten to a point where SPH media business recorded its first-ever loss of S$11.4 million, even after considering the Jobs Support Scheme grant of S$28.1 million.
Moving forward, SPH expects a further decline in its advertising revenue in this competitive media landscape as such it was no longer sustainable to keep this business segment without impacting the quality of journalism.
Nonetheless, as SPH understands its media business plays a key role in delivering quality news and information to Singaporean, winding up the media business or merging were not feasible options.
Hence, the not-for-profit structure was proposed, allowing SPH Media to continue its role while removing it from the SPH entity altogether.
How does this benefit SPH?
This restructuring is not without cost.
Unlike the recent CapitaLand case where the privatisation of its development business involves paying its shareholder, the restructuring done by SPH is the opposite. SPH will not only be paying for the expenses arising from the proposed restructuring, but it will also be ‘paying’ the CLG to get rid of its media business. So how is this deal beneficial to SPH?
Firstly, with SPH Media removed, it will remove any funding requirements and losses from SPH group financial. This would then stabilise SPH group’s revenue from here on out.
Secondly, the management believes it would give SPH greater flexibility as once the restructuring is done, the Newspaper and Printing Presses Act (NPPA) restrictions on SPH would be removed.
This will then, I quote:
“Give SPH greater financial flexibility to tailor its capital and shareholding structure to seize strategic growth opportunities across the other businesses in order to maximise returns for shareholders.”
Sounds great right?
However, if you look at the restriction imposed by NPPA, it essentially restricts individual investors to a limit of 5% ownership of SPH. This would merely allow SPH’s higher management or by other institutional investors to acquire more stake in SPH. Most SPH shareholders would not receive substantial benefit from the removal of NPPA.
What’s left of SPH?
Other than the media business, SPH also has other revenue streams from its non-media business. These businesses have in fact been performing better than their core business.
Retail and Commercial
- SPH owns 66% in SPH REIT whose portfolio comprises of three properties in Singapore, namely Paragon, The Clementi Mall and The Rail Mall. In Australia, SPH REIT holds an 85% stake in Figtree Grove Shopping Centre and a 50% stake in Westfield Marion Shopping Centre.
- The Seletar Mall
- Integrated development consisting of The Woodleigh Residences and The Woodleigh Mall
Purpose-Built Student Accommodation (PBSA)
- SPH is also an owner, manager, and developer of a portfolio of Purpose-Built Student Accommodation (PBSA) in the United Kingdom and Germany.
- Moving forward, SPH will continue to grow this segment, which is on track to become a sizeable PBSA owner-operator with 7723 beds across 28 assets in UK and Germany worth over S$1.4bn. So far, this segment has been doing well and has managed to achieve 88% of target revenue for AY20/21, up from 83%
Aged care
- SPH also has a portfolio of nursing homes in Singapore and Japan. In Singapore, it owns Orange Valley, one of Singapore’s largest private nursing homes.
- The Aged Care segment has also been doing well with its revenue improving by S$26.3m (93.6% YoY) in FY2020. This is another segment SPH is building pillar to its business.
Others (Digital, Exhibitions, Treasury Portfolio)
SPH has also invested in many other things.
- It currently has a 0.1% stake in Coupang, an e-commerce company in Korea. SPH had invested US 3.9million previously.
- Apart from that, SPH also have investments in companies like SgCarMart, M1 and many more.
- Moving forward, SPH will be venturing into data centres. They’ll be starting with a joint venture with Keppel Data Centres Holding Pte. Ltd (SPH holds 40% stake while Keppel holds the remaining 60% stake)
All in all, these non-media businesses make up around half of SPH revenue for the first half of FY2021.
After accounting for various expenses, its non-media business makes up to 97.7% of SPH total profit before tax for the first half of FY2021.
With this, we can safely say that the removal of the SPH media business would have minimal impact on SPH profits.
SPH’s post-restructuring financials
With the removal of its media business, we could see an improvement in SPH operating profits and Profit After Tax and Minority Interests (PATMI), which is great news for shareholders.
Earnings per share before taking into account Restructuring Adjustments* will increase from S$0.04 to S$0.05 after the proposed restructuring.
*Excludes the Job Support Scheme grant income attributable to the Media Business.
The profit margin for its properties business has been doing better in general, compared to its media segment. Hence the removal of its media business may improve SPH profit margin moving forward.
Nonetheless, we should take this profit margin with a pinch of salt, as part of its operating revenue includes any fair value change on investment properties. These values can change wildly like the case of 2020 which the properties were valued less, leading to a fair value change of -S$228 million that ultimately affected the properties profit margin.
Is SPH a buy now?
At the current price, SPH does seem to be undervalued. After its restructuring, SPH will essentially be a real estate company, hence we can value it based on its book value.
According to its presentation, SPH estimates its NAV per share to be at S$2.08. This is approximately a 25% discount on the current price. Assuming dividend returns to the FY2019 level of S$0.12 per share, SPH could potentially yield a dividend of 7.9%. Relatively high but we would never know if it would return to that level.
These are attractive reasons to grab SPH shares now.
However, there is one problem.
I do not like SPH’s non-media business as I feel they are everywhere. Instead of focusing on one segment and building an edge, it has exposure to retail, PSBA, aged care and even data centres business. As the saying goes, “Jack of all trades, master of none”.
Proposed Restructuring is not confirmed!
Nonetheless, things can change as these are just proposed changes that are subjected to shareholders approval at an extraordinary general meeting to be convened at a later date.
Other than shareholders’ approval, SPH has to obtain regulatory approvals from JTC Corporation for the assignment of the key leases to its subsidiary and also from Minister for Communications and Information and/or the Infocommunications Media Development Authority (IMDA) regarding the press licences.
Unlike recent delisting where shareholders did not have much say due to the high insider ownership, this vote would be much more democratic.
This is because SPH doesn’t have any substantial shareholder due to the Newspaper and Printing Presses Act which restricts any individual from holding more than 5% of the shares.
As such, I highly encourage shareholders to vote when the time comes as this is a significant event that not only affects SPH but Singapore’s journalism in general.
Closing
Whether you are a shareholder or not, this is an interesting development and one that I will closely follow. Who knows, it may be an interesting investment further down the road.
Alvin had done a video on SPH restructuring recently, if you prefer watching a video here it is:
p.p.s. I focus on SPH’s media asset restructuring in this article. If you’re curious, Cheng did an analysis of SPH’s business fundamentals over the years.
Just wondering whether the management shareholders get 200 votes for each share held for the restructuring? If no why does SPH so sure that the restructuring will be approved when they appointed the Chairman of SPH Media even before the restructuring is approved.
The 200 votes for management shares only applies to appointment and dismissal of directors and SPH staff.
what about my second question on why are they appointing Chairman when the restructuring is not approved yet?
I dont know. you ask them