SPH – CIMB

Pseudo retail REIT

With a growing retail property arm and stable media business, SPH is increasingly like a retail REIT with limited cash-call risks, in our view. Offering forward yields of 6.4% vs.6.1% for retail S-REITs after its YTD underperformance, we think it offers a cheaper alternative.

We raise our EPS marginally on property rental adjustments and our SOP target price after rolling one year forward. We also raise DPS on less conservative payout assumptions. Upgrade from Neutral to Outperform. We see catalysts from higher-than-expected ad growth.

Retail malls for growth

With a stable and mature print business, we expect SPH’s growth to come increasingly from its retail malls. Revenue CAGR for SPH’s gem asset, Paragon, had been an impressive 8.3% over 2006-11, outstripping that for comparable assets under retail S-REITs. We expect similar success for its Clementi Mall during its first renewal cycle; with the success extending to its Sengkang Mall on completion.

Stable media business to underpin cashflows

We expect its newspaper & magazine segment to remain dominant and underpin SPH’s cashflows. We expect a seasonally stronger 3QFY12, as strong property, auto and telco display ads mitigate lukewarm GSS ad demand and weaker recruit and classifieds.

Pseudo retail REIT

With typical payouts of >90%, we believe SPH is akin to a retail REIT. Against retail REITs, SPH stands out for its stronger balance sheet and thus limited cash-call risks, in our view. 2Q12 net gearing is low at 35% with property asset values booked at historical costs less depreciation. With a growing property arm, we do not dismiss the possibility of a spin-off or sale of assets to a REIT over the longer term.

Cheaper alternative

SPH has underperformed retail S-REITs YTD and during the recent flight to safety. Yields are now 6.4% vs. an average of 6.1% for retail S-REITs. We see SPH as a cheaper alternative for investors seeking exposure to retail S-REITs.

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