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Sizing my investment in SPH.

Saturday, February 11, 2017


A journey through time with SPH.

When I tell people I am a blogger, some assume that I am IT savvy. People who say that are probably not very IT savvy. We only need to know how to use a word processor to blog.

My generation and those who are older would remember that in between typewriters and PCs, we had word processors. Their time on Earth was pretty short, however.

I am really a dinosaur. If I were to look for a job today, with my qualifications and skills, I would probably have a hard time getting a job that pays more than $3,000 a month.

From being economically inactive to being unemployed? I shudder at the thought.

I still like hard copies of newspapers, magazines and books. I tried using an e-book reader which someone gave me many years ago. I didn't like it.

I should have sold it when it was still worth $500 but it was a gift. Now, it is just another item collecting dust at home but I can be rather sentimental.

Being sentimental can be a terrible thing for an investor, of course, as we constantly tell ourselves not to fall in love with our investments. Well, I can only try my best as I am only human.

I am lucky that I am also pragmatic. I like to think that being pragmatic helps to temper any sentimentality in me. 

When I spoke with somebody who bought SPH shares recently, I said that I wouldn't buy SPH shares today. It happened so quickly that I surprised myself a little bit.

I have always suspected that there is more than one AK inside me. Spooky!

I have been an SPH shareholder for many years and doing a back of the envelope calculation tells me that, taking in the dividends collected over the years, my earlier investment in SPH is almost free of cost.

However, dividends collected for my later investment in SPH probably managed to do only a bit more than cover the decline in its share price over the same number of years.

Like it or not, media remains the core business of SPH and that business is very much disrupted. 
On hindsight, SPH should have ventured more aggressively into real estate but they didn't. 

I remember Dr. Tony Tan mentioned that selling their land in River Valley was a mistake many years ago. He was right.

Now, we see disruption technology everywhere and our investments could get disrupted one way or another. 

Being rather old fashion could be a problem for an investor like me as I am not always in touch with the changes in technology nor fully aware of the implications of such changes on the ground.

Having said this, until I could find replacement investments for income, I was quite willing to hold on to my investment in SPH. It is still an entity which has a relatively strong balance sheet and is still generating an income for me.

Recently, as things turned out, I added several income producing stocks to my portfolio and I decided to let go of my later investment in SPH.

This effectively reduced one of my larger non-REIT investments by half, boosting my cash level which would allow me to take bigger positions in other income generating investments.

I am retaining my earlier investment in SPH as it is almost free of cost and I still hope to benefit from possibly the sale of Seletar Mall to SPH REIT at a later date.
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Added 18 July 2017:

Related post:
Fate of my investment in SPH.

11 comments:

AK71 said...

Lee Jiahui:
What about your niece's sph?

AK:
My niece became a shareholder in 2009. Her entry price was relatively low. She has received 8 years of dividends including the special dividend from the listing of SPH REIT. She won't add to her investment but she is OK to keep her investment and to continue receiving the smaller dividends in future.

For those who are somewhat lost, see:
At what age to start investing in stocks?

Kevin said...

Hi AK,

You have evolved ok and not a dinosaur. i noticed you started to attach youtube videos on your blog posts unlike before. :P

I think the problem with SPH is the management team. They are clueless on how to bring the company to the next dimension. They are not proactive in seeking new opportunities in the current economic landscape. For example, they can partner Singtel or ST electronics in the ICT education space. SPH can provide the content and Singtel and ST electronics provide the tech portion.

You look at Singpost, they are also affected by disruption which affected their traditional mail business but they evolved and went to take on new businesses which are e-commerce and logistics. Their previous CEO, Wolfgang Baier did a great job in the transformation and I am sure they will begin to reap the gains in no time with the partnership of Alibaba being their second largest shareholder.

I also agree with you that I wouldn't buy SPH shares today if the status quo remains as such. :P

AK71 said...

Hi Kevin,

Thank you for the compliment. I will continue to include what I feel are interesting video clips in my blog as I spend quite a bit of time watching stuff on YouTube these days anyway. :)

You are not the first person to tell me that SingPost which is also an old economy entity like SPH is doing something right to fit into the new economy. I did spend a bit of time looking at SingPost just a few months before Alibaba came into the picture but gave up after the share price went through the roof. I remember mentioning in my blog before.

Today, I spent most of the morning and almost the whole afternoon re-looking at SingPost. I am hoping that an incomplete analysis (which is what I always do) will give me some idea as to what might be a reasonable price for me to pay for a small investment in a multi-billion dollar entity that is going through a massive transformation in an effort to stay relevant.

AK71 said...

Reader:
Just to ask if now is the right time to buy SPH. Since they bough orange valley to their assets.

AK:
I like the healthcare business. It would be nice if SPH follows through and makes this a bigger part of their portfolio. If this is a piecemeal effort, it is not going to cut it.

AK71 said...

Possible catalysts on the horizon:

1) Injection of Seletar Mall into SPH Reit. Occupancy for the Seletar Mall remains strong at 100% with about 82% of lease due for renewal by Nov 2017. This suggests that the asset divestment (with a carrying amount of $495m, pledged as security for a $300m bank loan) could take place sometime next year as SPH prefers not to have to provide income support
when injecting into the REIT.

2) Strategic review of M1 is ongoing. If successful, the stake sale is worth at least $281.3m (or 17.6 cents per SPH share) based on M1’s last price of $2.26. Other than Chinese buyers such as Shanxi Meijin Energy Co and China Broadband Capital, local internet provider - MyRepublic is also said to be seeking private equity partner to help finance the offer.

AK71 said...

SPH and Kajima Development have emerged as the top bidder at a state tender for a 99-year-leasehold mixed commercial and residential site in Bidadari Estate. They have offered S$1.132 bln, which works out to S$1,181 per square foot per plot ratio based on the maximum gross floor area of 958,450 sq ft allowed for the 99-year leasehold site next to Woodleigh MRT Station. The second highest bidder was a tie-up between Far East Civil Engineering and Sekisui House, which offered about S$1.12 bln or S$1,166 psf ppr for the 2.54-hectare site.

Given its strong balance sheet, we believe SPH will likely fund the land acquisition via bank loans and internal resources (the group had about S$800m in cash and investments as at end-Feb 2017).

betta man said...

SPH's price has dived to $3.00 at point of writing. This is because SPH reports 45.2% decline in Q3 earnings amid weaker magazine business.

Is this a good price to nibble ? Stripping out the revenue contribution from its print business, do you think its current dividend can be sustained ?

Appreciate if you could talk to yourself. (Don't worry, I won't hold you responsible for any decisions I may make)

AK71 said...

Hi betta man,

All I can say is that disruption to SPH's media business is deepening. The numbers speak for themselves.

Will I add to my position? Do I think the dividend can be maintained?

You might want to read this again:
http://singaporeanstocksinvestor.blogspot.sg/2017/01/the-fate-of-my-investment-in-sph.html

My approach is still the same. So, I will wait and see as I hold my remaining position.

Kevin said...

Hi AK and betta man,

For a company to be able to sustain its dividend payments, it must be able to generate cash to pay its bills and to maintain its businesses in their current state. The left over cash can then be used to pay dividends.

At the moment, SPH is still able to generate free cash flow but its media business is going down fast despite being a monopoly business. what an irony. -_-"

AK71 said...

Hi Kevin,

The monopoly is in name only. With huge disruption in the world of media over the years, SPH lost its grip a long time ago. :(

AK71 said...

Raymond Ng:
2009 price b'cos of GFC but the SPH fundamental is still solid... PE was ~10X.
Current PE is 18X.
2017 EPS estimate 12c, fPE is 25X... expensive for me.

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