SPH newspaper business to steadily drop by 1-2% each year

No thanks to margin pressures.

According to OCBC, they re-evaluated the newspaper business critically and believe that its earnings will decline at 1%-2% p.a. over the long term – a relatively benign rate.

This is mostly due to margin pressures as management aggressively defend circulation numbers.

On Sunday evening, SPH announced that it is exploring a REIT listing on the SGX Mainboard.

Here's more from OCBC:

We believe the REIT would likely be a Singapore focused retail mall trust, with

Paragon and Clementi Mall being injected and Seletar Mall positioned as a pipeline asset.

We could see significant divestment gains, and consequently a special dividend and/or a distribution in specie of REIT units to shareholders.

Assuming SPH retains a 51% stake in the REIT, we estimate potential divestment gains of S$625m to S$744m or 39 to 46 S-cents per share.

In our view, SPH’s share price still mainly reflects a declining newspaper cash-cow and does not fully  value its growing retail mall business.

A potential REIT listing would, over the short term, result in the share price rising to reflect existing malls’ market values.

Over the mid to long term, we expect to see meaningful re-rating as management further executes on its retail property strategy.

We see three key factors pointing to this scenario: 1) management’s clear focus on growing its retail property business; 2) the group’s now mature capabilities in mall development and management; and most importantly 3) a war-chest of up to S$2.5b in capital and debt headroom.