Singapore Press Holdings (SPH)

[Shiyi]

With the declining trend in its media business, i have always held the view that investors are valuing SPH's business at a high premium and overall at a share price of 3.57 now, i think it is overvalued..

Let me try to give my views for its valuation below...

Based on its latest financial statement, its media earned profits of about 33m and property about 39-40m. Due to some impairment losses in its media, i will be generous, i will take it that its long term recurring profits for media is around 40m per quarter

Extrapolating, its profit for media and property will be around 160m each. Due to the fact that earnings have been declining over the years for media, i would attach it with a lower p/e of 12, so i would value it around 1920m. For its property segment, i will value it more generously at p/e of 16 and so around 2560m, so total of 4480m, with a share count of around 1.6b, it works out to $2.80 per share compared to its current price of $3.57.

Actually, my total annual estimated profits of 320m for property and media is very generous because it is before tax and non controlling interests. For comparison, for full year 2015, SPH's total profits to shareholders is actually 321m and it dropped to 265m for full year 2016. In fact my estimate for full year 2017 will be lower than 265m.

I think SPH is way too overvalued and i wouldnt touch it for anything above $3.

well, the market is taking SPH's declining profits in its media business more seriously now

Almost 2 years later, back to review SPH, trading at 2.38 recently, i still thinking it is trading at a unjustified premium. Annual profit is still dropping, leverage has gone up, dividend per share is showing signs of a gradual decrease, and imo, it is trying very hard to grow profits through the aged care and student accomodation, not sure if this is its area of expertise, and it also appears to be capital intensive. If it is to be valued as a property development/investment business, it is trading above its NAV, but most property development companies or reits in singapore are trading below their NAV. I would still give it a pass at today's price

For years, i have been suggesting that SPH is not worth its premium. And i am so critical of it because it is part of the index, a supposed blue chip. Many uncles aunties will just buy it blindly. Now that it is going to be out of the index, i wont bother to track it anymore. 


Today it is trading at around $1.35. About 3/4 years ago, it was trading for more than $3. Serious value destruction to many innocents who bought it in the first place because it is called a blue chip. i always hold the view that blue chips have to live up to their 'reputation'

Thanks money, for tracking back your thoughts stretching back the last 3.5years.

To enter the STI index, the criteria is it must be one of the highest market cap company on SGX mainboard listing, followed by sufficient trading liquidity and free float. There isn't any "quality" perspective over here. As a reference, the S&P 500 and DJIA inclusion criteria is also quite similar, with size as the main criteria. Although the S&P 500 has a profitability criteria but if we were to superimpose SPH's scenario, it doesn't help because SPH has been profitable (abeit, getting less and less profitable).

https://corporate.sph.com.sg/system/asse...endix3.pdf

When you are in some index, it doesn't mean you are a "quality" company. It only means you are a large company. So all in all, i think the word "blue chip" is really a heuristic that one has to avoid or suffer at their own cost - whether uncles aunties or anyone.

We shouldn't even have a "blue chip" description per say in the first place. Just focusing on the STI index for the last few years, we can see ex-index constituents like Noble and Hutchinson Port Trust....I am quite sure that they haven't lived up to reputation. I think it is better for us not to assume any company has to "live up to their reputation". "Reputation" is a meaningless framework that we create ourselves and is not meaningful at all but it serves as another heuristic.

Hi Weijia
Being included in an index has some "reputational value" as index funds and institutional funds will buy in.
On the contrary, the stock that is removed from the index is usually underperformed and  come under further selling pressure.

Stocks that are removed from an index are often a red flag. Noble is a good example.  In the long term, stock index is usually on an upward trend as it keeps "rebalancing" every quarter or every two quarters. There is a kind of selection process, weeding out the weaker ones and coopting the strong ones. That probably explains why index stocks are regarded as blue chips. For the same reason,  WF is asking people to buy S&P ETF.