Here are some key highlights from the 4Q19 SPH Results Briefing:

1. Restructuring: Retrenched 71 people in the media and sales and marketing department. If running on a 12 to 14% decline in media similar to last year, need to realign cost.
2. Purpose-built student accommodation (PBSA): The group has invested $600mn in PBSA and $200mn in Figtree (via SPH REIT) last financial year. It is trying to build recurrent property income to maintain the dividends. A DPU of 12 cents implies an annual payout of S$192mn. Another attraction of PBSA is the 18-year-old cohort in the UK is growing by 30% for the next few years excluding any rise in foreign students.
3. Gearing: SPH has net debt of around S$1.5bn (excluding S$450mn of perpetual securities) and gearing is still below 30%. Possibly could spend another S$1 to 2bn on acquisitions. PBSA is still small in scale and should be double at least (when compared to size of REITs listed). PBSA opportunities can be in Europe and Australia as Chinses students are heading into these countries.
4. Aged Care: There are 15 major REITs listed in US focused on this area. Not looking to invest at the operator level but at property layer. Nevertheless, need an operator to perform well otherwise the value of the property is affected. By owning an operator, SPH can better understand the operations and various implies of the business (e.g. regulations, insurance). Orange Valley provides domain knowledge.
5. Content: Parties that give away the content free realise the model is not working. Need to produce quality content that people want to pay. Magazines are good at producing unique and exclusive content.
6. Brexit: Assumption is there will be Brexit but unclear the impact on the economy. Regardless, there will still be the need for education. A positive is the authorities will provide students with  2 year Visa after their graduation. Previous, administration capped it to 4 months. This means 2 years of additional demand by such students.

Comment

Media PBT has dropped from S$241mn in FY15 to S$55mn in FY19.

We worry the fall will persist because the high margin classifieds ad revenue is still hovering at S$89mn.

Expect more PBSA acquisitions to build up SPH recurrent earnings.

# Phillip Securities Research does not have any research coverage or recommendation on SPH.