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Investment in SPH is larger now.

Saturday, October 31, 2020

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:





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:

33 comments:

fenix said...

For many investors, doubts about the performance of SPH centre on the CEO. Let's just say he doesn't inspire confidence.

AK71 said...

Hi fenix,

That could be a contributory factor to SPH's dismal performance too, of course. ;)

laurence said...

Quote.
That could be a contributory factor to SPH's dismal performance too, of course. ;)
Unquote.

There is no "If".
According to netizens all over the forums, the pathetic situation of SPH lies enreally on it's CEO. Period.

And did I notice our Oracle had dropped a less than discreet hint that he had recently scooped up more shares of SPH on the cheap? ;)

drap said...

Hi AK,

Thanks for sharing :) I was looking into SPH as well, thinking it might have been pushed too low with undue pessimism.

I agree that knocking off 25% off the NAV of SPH’s assets is prudent for valuing their property businesses, but what about its media business? I believe their media was still making positive profit until this year, but the rate of their revenue decline in Media has not been decreasing from 2017-2019, even without Covid the Media business would likely have been making losses from 2020 onwards based on my rough projections. If Media segment is likely to make sustained losses, then would it not have negative equity value? And it would be slightly optimistic to consider the property segments while ignoring the media segment?

I didn’t have any visibility on when the revenue decline on the media side would stabilise, so I couldn’t attach a certain negative value on Media to subtract from the Property businesses value to convincingly value SPH myself.

At the same time, I believe some of their assets are buildings used for their media business, so if their media segment are going to make sustained losses moving forward it wouldn’t be too fair to consider them to add to SPH’s “value” would it?

What are your thoughts on this? Thanks! ;)

AK71 said...

Hi Laurence,

To be fair, SPH was already in a difficult position before the current CEO was appointed.

Having said that, it would take a person with a great deal of business savvy to turn SPH around and it isn't wrong to question whether the current CEO is in possession of something like this?

Did I hint at something? Oops.

AK71 said...

Hi drap,

Obviously, you have spent a lot of time pondering this matter and I appreciate the sharing.

I try to keep it simple because I am not very good with numbers.

I am also somewhat mental and if it gets too complicated, I go crazy. -.-"

So, I would simply write off the print media business and ascribe it a zero asset value in the balance sheet.

However, when it comes to the income statement, like you have said, the print media business might be a drag and the property business would have to pick up the slack.

SPH would be better off without its print media business.

Could we see them spinning it off like what SembCorp Industries did with SembCorp Marine?

Instinctively, I think it unlikely as they are running The Straits Times, our national newspaper.

If they should do something like this, however, it would unlock value for shareholders; value in its assets which is currently being pinned down by its print media business.

Since I think this is unlikely, it is another reason for me to be prudent when it comes to sizing my position in SPH to be relatively small even though I think it might recover to be a rather decent investment for income post COVID-19 crisis.

This purchase was not made with an eye on a quick flip or a big capital gain but on the possibility of it generating more passive income for me in the future.

Notice I said in the blog that it is all slightly speculative because, for sure, I do not know everything. :)

Unknown said...

Hi AK

Singtel has dropped to $2. What are your thoughts on this? Thanks ;)

AK71 said...

Hi Unknown,

I was wondering if someone might ask about SingTel when I blogged about SPH. ;p

No plans to blog about SingTel but I might buy some because it looks terribly oversold to me.

PY said...

Hi AK,

Many thanks for your unselfish sharings. I have learnt a lot from you even though my portfolios all in the red. What do you think of Wilmar, looking weaker and weaker Everyday, look like May go down before S$4 soon.

Unknown said...

Good morning AK

Always love to read you, and have great respect for your opinion. Thanks for sharing,
and thanks for self talking too so long u talk out loud and clear for us to hear.
God bless you

Victor

AK71 said...

Hi PY,

There are bear markets and there are bull markets.

As long as we are mostly invested in good income generating assets, as investors for income, we should do well enough in the long run.

If we are trading for a living, then, day to day movement in stock prices would be more of a concern.

Why are you worried about Wilmar's stock price going down?

Do you think there is something fundamentally wrong with the business?

I replied to another reader regarding Wilmar and you might want to read it:
HERE.

Know what you want and ask if what you are doing gels with your objective.

Then, you will know what to do? :)

AK71 said...

Hi Victor,

Yes, it is just AK talking to himself. ;)

Glad you enjoyed it. :)

us said...

Hi AK,

Love your posts as usual. SPH dividends for 2020 is only 2.5c, implying a yield of 2.5%. Is this low yield sufficient for you while you wait for the business to recover?

As it's always your policy to receive meaningful dividends while waiting for the price to be valued fairly.

In that case, maybe more downside before things get better for SPH? :P

Dom said...

Thank you and it's refreshing to get to read of your latest accumulation

AK71 said...

Hi us,

Unfortunately, many of my investments are in the same boat.

This recession will, more likely than not, last a longer time than the last recession.

We have to get used to reduced dividends or even suspended dividends, tighten our belts in the meantime and, if we can afford it, invest in what we feel could be more rewarding in the future.

AK71 said...

Hi Dom,

To be clear, it is just a nibble and it could be a one off exercise.

Accumulation gives an impression of constant buying. ;p

小咪 said...

Hi AK,

Would you talk to yourself on whether you would subscribe to CapitaRetail China Trust's rights if you have time. TIA

PL said...

Hi AK,

What do you think of SPH's investments in overseas old age homes and dormitories? Are they venturing into areas where they do not have the expertise?

Eileen

Dom said...

Hi AK, nothing seems to be holding down SPH :o) cheers

AK71 said...

Hi 小咪,

I do have a small investment in CRCT and I will be taking part in the rights issue.

I rather like that they are reducing their reliance on shopping malls.

I also like that this is going to be a DPU accretive exercise.

AK71 said...

Hi Eileen,

Well, they have to start somewhere. ;)

I think it is a move in the right direction.

AK71 said...

Hi Dom,

Mr. Market was being way too pessimistic about SPH. ;)

Unknown said...

Thank AK for the enlightening self talk. I too am vested but now have a clearer picture.
Thanks for ever kindness to share and self talk.

victor

PL said...

AK,

You are smart and generous to share your thoughts with us. sPH is now 1.26

Dom said...

Hi AK
SPH respond to SGXQuestion 1:
Are you aware of any information not previously announced concerning you, your
subsidiaries or associated companies which, if known, might explain the trading? Such
trading may include events which are potentially material and price-sensitive, such as
discussions and negotiations that may lead to joint ventures, mergers, acquisitions or
purchase or sale of a significant asset. You may refer to paragraph 8 of Appendix 7.1 of
the Mainboard Rules for further examples.
If yes, the information shall be announced immediately.
Question 2:
Are you aware of any other possible explanation for the trading? Such information may
include public circulation of information by rumours or reports.
Response to Questions 1 and 2:
Singapore Press Holdings Limited (“SPH”) regularly evaluates all opportunities across its
portfolio with the objective of enhancing shareholder value, which may from time to time
involve discussions with various parties and stakeholders. There is no assurance that any
transaction will materialise or that any definitive or binding agreement will be reached.
SPH will, in compliance with applicable rules, make further announcements as
appropriate.
Shareholders are advised to exercise caution when dealing in the shares of SPH and to
refrain from taking any action in respect of their investments which may be prejudicial to
their interests. In the event that shareholders wish to deal in the shares of SPH, they
should seek their own professional advice and consult with their own stockbrokers.

AK71 said...

Hi Victor, PL and Dom,

AK is mental and just talking to himself although his mental illness seems to be less serious these days and he talks to himself less often than before. ;p

foolish chameleon said...

up 19% yesterday!
AK , jin zhun kar!

AK71 said...

Hi fc,

It is just AK's pure dumb luck. ;)

If only I am always so lucky. :)

Lynn k said...

I had been reading your posts and do appreciate what you have shared. I'm just wondering if you can share with us how do you decide when to sell a stock which you had initially bought for dividend income ? I'm very perplexed always when it comes to this. For eg, if the stock had increased by 200% do I sell or hold on to it still for the dividends, since it's quite impossible for me to get the stock back at the initial low price. Thank you in advance.

AK71 said...

Hi Lynn,

I have found that the best investments for income are those I don't ever want to sell.

If an income generating asset is still doing well for me, why should I sell it?

That is a pertinent question to ask.

Of course, we can always do a bit of trading instead of purely investing.

It is never wrong to take profit as some would say.

So, for example, I got into Old Chang Kee when it was 26 cents a share.

Its share price doubled later on, I sold half of my investment.

Whatever was left was free of cost.

I just keep the remaining investment for the dividends it pays me year after year.

Free money. ;)

Always question our motivations.

Are we investing or are we trading?

These blogs might (or might not) be enlightening:
1. Hock Lian Seng should be 69c a share.
2. Missed selling APTT at a higher price.
3. When to Buy, Hold or Sell?
4. Trading around core positions for extra money.
5. Old Chang Kee: Have my curry puff and eat it too.

Betta man said...

Hi Ak, with the recent restructuring news of SPH, what do you think is a fair price for sph? Thks.

Unknown said...

Hi AK,

Can you talk to yourself regarding the recent SPH news?

AK71 said...

Hi Betta man and Unknown,

In a nutshell, SPH's NAV will go down but EPS will go up.

So, as an asset play, SPH isn't as attractive as before but as an investment for income, it is more viable now.

This is not an immediate change, of course, and needs approval at EGM and months to execute.


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