SPH's overseas assets to play a key role in boosting profits: analysts

Its first UK purpose built student accommodation contributed $6.3m to its profits.

Singapore Press Holdings’ (SPH) overseas assets are forecasted to remain as its lifeline to rejuvenate earnings after it saw its Q1 FY2019 profits slip 6.3% YoY to $57.9m, according to a report by CIMB Research.

SPH’s classified print ad revenue clocked a -17.1% YoY decline in Q1, which its CEO ng Yat Chung attributed to continued media business headwinds that offset growing revenue from the digital side of the business.

According to its financial statement, the firm’s property segment revenue rose 11.1% to $68m whilst operating profit grew 5.2% on the back a $3.2m contribution from its first UK purpose built student accommodation (PBSA) which was acquired September 2018. CIMB Research’s report highlighted that this asset further contributed $6.3m and $3.2m to the firm’s topline and profits before tax (PBT), respectively.

Also read: SPH profits down 6.3% to $57.9m in Q1

CIMB Research analysts also noted that the firm’s property segment will continue to grow following SPH’s purchase of Sydney shopping centre Figtree Grove in December 2018 for $168.36m (US$124.5m) via its real estate investment trust (REIT) and tender for a mixed development site at Pasir Ris.

“We see faster expansion of its overseas asset management portfolio and better quality assets as possible near-term catalysts for the stock,” the analysts said.

Meanwhile, the report also noted that whilst the average launch price of over $2,000 psf for SPH’s Woodleigh Residences was above CIMB’s forecast of $1,850 psf, the property cooling measures introduced in 2018 could take its toll on the uptake rate of the development. Woodleigh Residences is slated for completion by end-August 2022.

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“We understand that only 55% of the first 50 units released were sold during the soft launch, with the second phase scheduled for Q3 FY2019,” CIMB’s analysts added.

This cautious sentiment was echoed by DBS Equity Research’s analyst Joseph Ng which cited that a bumper crop of new private home launches in H1 2019 could provide some level of competition for Woodleigh Residences.

“Moving forward, we believe that it is highly likely for the group to continue to bulk up on its UK student accommodation portfolio, pursuing assets associated with the Russell Group that five an approximate 6% cap rate,” Ng stated.