Investment in SPH is larger now.

Back in early 2017, I blogged about my decision to substantially reduce my exposure to SPH, an old timer blue chip investment in my portfolio.

However, I still retain till this day my investment in SPH made during the Global Financial Crisis more than 10 years ago.

In early 2017, the decision to reduce my exposure to SPH, selling my later investment in the business, was based on the accelerated disruption of its print media business.

I knew of the disruption and was expecting a gradual decline.

Unfortunately and also shockingly, it happened a lot faster than I thought it would.

Then, more recently, SPH's stock price crashed dramatically due to the crisis caused by the COVID-19 pandemic but failed to recover with the broader market.

It reminds me of a Chinese saying:

病來如山倒.

Unfortunately, SPH's print media business is a shadow of its former self today.

However, is this enough of a reason for such an enduring sickness in its stock price?




Back in the day when AK and Facebook were still friends, I had discussions with some readers on what SPH would be worth.

If we thought that the media business might be worth nothing one day, then, we could value SPH based only on its property investments.

Back then, some said SPH stood for "Singapore Properties Holdings."

SPH has many property investments and probably the most prominent to many people is its big stake in SPH REIT.

Unfortunately, SPH REIT suffered from disruption as well when the COVID-19 pandemic hit.

SPH is terribly unlucky.

It is reasonable to expect that tourists visiting Singapore will not be returning to the pre COVID-19 numbers anytime soon.

It could take a year or two or more.

So, although not hit as hard as hospitality, it is a reasonable assumption that SPH REIT's crown jewel of a mall along Orchard Road, The Paragon, will continue to suffer.

After all, The Paragon depends to a large degree on patronage by tourists.




Still, since SPH's NAV per share is almost all made up of its property investments today, buying at a big discount to this should give some margin of safety.

Of course, like I said before, if the COVID-19 pandemic stays with us for a longer time, we could see defaults becoming more common.

During the Global Financial Crisis, around the world, we saw massive devaluation of properties, for example, and a downward revaluation of 20% to even 30% was pretty common.

If we were to assume a massive revaluation of SPH's property assets to distressed levels, knocking off 25%, we get about $1.50 NAV per share.

So, I believe that, fundamentally, any price below $1.50 a share should give some margin of safety, all else being equal.

The lower the price, the bigger the margin of safety.




Of course, investors for income should also be interested in SPH's dividends.

SPH slashed dividends drastically to conserve cash because of the COVID-19 pandemic.

Prior to the COVID-19 crisis, SPH recorded an earnings per share (EPS) of 13c.

SPH also paid an 11c dividend per share (DPS).

With these numbers, at $1.35 a share (which was the price on 11 June 20 when I was asked about SPH as an investment by a relative), if the pandemic did not happen, it would be quite a straightforward buy.




Now, as COVID-19 lingers, there is uncertainty over the future of SPH's property investments including its student hostels in the UK.

It is fair to say that there is uncertainty too over its ongoing residential property development on a plot of land in Woodleigh in Singapore which they might have paid too high a price for.

Of course, as the local property market has remained rather buoyant in the face of the ongoing COVID-19 crisis, Woodleigh Residences could still do well for SPH and their Japanese partner, Kajima Corporation.

I do like the development's location and the fact that it is integrated with a shopping mall and MRT station on the purple line.

This is not an advertisement but if you are curious and want to take a look, here is the link:

https://woodleighresidencesofficial.com/

Mr. Market just doesn't like uncertainty.

Even so, SPH REIT's unit price has recovered from its lows while SPH's stock price has only recently formed a new low.

Now, for a bit of speculation again.

SPH REIT's DPU during normal times was around 5.5c.

Is it conceivable for SPH to pay, say, an 8.0c DPS when normal times return?

Why do I ask this question?

If an investment in SPH is able to give a dividend yield that is similar to or higher than the distribution yield offered by SPH REIT, I would rather invest in SPH instead of SPH REIT.

This is especially when Mr. Market is offering a selling price now that has discounted SPH's media business and more.

Then, any better performance by the media business however unlikely would simply be a bonus.




So, was I thinking of increasing my investment in SPH at $1.35 a share?

No.

Why?

Looking at the charts then, SPH's downtrend was stark.

The 50 days moving average was still on a steep decline and it was providing a strong resistance.

Too much dust and I could catch a falling knife.

So, I decided to wait.

Give it more time and see what happens.

I remember having a K.I.V. file in my army days and that was where I kept SPH, I guess.

That decision turned out to be quite fortunate.

What about now?

The air is still dusty and I could still catch a falling knife. 

However, the knife is probably a smaller one and might not be as sharp.

What does this mean?

It means that if this is a mistake, it should be a less costly one.

Yes, to be quite honest, this is all still slightly speculative.

So, I am crossing fingers and maybe toes as my investment in SPH is a little larger now.

Related posts:

1. Financially free and Facebook free.
2. Sizing my investment in SPH.