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We believe KEP’s higher offer for SPH of S$2.35 is a compelling one given that it gives SPH’s shareholders a much quicker way to monetise their investments since: a) it has received all regulatory approvals, and b) any competing offer can only occur after KEP’s scheme meeting thus materially delaying any such competing offer. From SPH’s perspective, the revised offer values SPH at a premium and more importantly avoids the scenario where assets are cherry-picked. Thus, we recommend to ACCEPT THE OFFER.

WHAT’S NEW?

Revised proposal: On 10 November, Keppel (KEP) returned with a higher offer in response to Cuscaden’s full-cash offer of S$2.10/share. KEP has now improved on its original cash-plus-stock offer of S$2.099/share by bumping up the cash component by
S$0.20/share, increasing the total consideration to S$2.351/share. This represents a 12% premium over Cuscaden’s offer and 13.1% premium over Singapore Press Holdings’ (SPH) 1M VWAP. The revised offer now values SPH at S$3.8b as compared with S$3.4b previously. KEP has noted that this is its final offer and it will not be revising this upwards.

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Two key compelling points to note with KEP’s offer which the market may not be fully aware of. These are: a) KEP has obtained full regulatory approvals, domestically and internationally, for its deal while the competing offer will have to jump through hoops which could take between two to six months from now, given that the Christmas holiday season is around the corner, and b) SPH has given the undertaking that any competing offer will have to wait eight weeks until after KEP’s scheme meeting to convene another scheme meeting – this means that investors will have to wait for a much longer period of time before it can hope to hear from Cuscaden. There is also the risk of Cuscaden not obtaining the necessary approvals (ie no deal) whereas KEP’s offer has all such approvals in the bag.

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• Key approvals outstanding. With all of the regulatory approvals obtained, KEP’s scheme remains conditional on: a) approval by shareholders of SPH and KEP respectively, 2) court sanction of the scheme, and c) completion of SPH’s media business restructuring. Shareholder approval for the media restructuring has been approved and it is expected to be completed around 1 Dec 21. KEP has waived the material adverse effect condition.

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STOCK IMPACT

Keppel Corp (KEP SP/BUY/TP: S$6.74) – Adrian Loh

• A compelling revised offer in our view. We believe that KEP’s revised offer is compelling given that all the regulatory approvals have already been obtained by the company, in comparison to Cuscaden which has yet to embark on this process. This is no mean feat as it would take months before such approvals are obtained, especially from Australia’s Foreign Investments Review Board. In Singapore, KEP was not required to obtain Infocomm Media Development Authority (IMDA) approval for the SPH acquisition given that it already owns M1; however, Cuscaden will need IMDA approval. More importantly, SPH has given the undertaking that any competing offer will have to wait eight weeks until after KEP’s scheme meeting to convene another scheme meeting – this means that KEP’s competitors will be set back by months which may not lead to any firm deal as such a deal will require regulatory approvals.

• New exposure to assets. The potential acquisition of SPH is a good deal for KEP’s shareholders as it gives the company exposure to assets that it currently does not have, especially the Purpose Built Student Accommodation (PBSA), while expanding its foothold in its three key business segments – asset management, urban development and connectivity. Asset management in particular could witness a 27% increase in AUM to around S$47b.

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• Not exactly asset-light. While the acquisition bulks up the company’s property assets in the near term, KEP stated that it will look to monetise as much of the SPH assets as possible via existing or new REITs, eg potential for Keppel DC REIT to acquire the Genting Lane Data Centre once it is completed and stabilised, or the potential listing of a new Singapore retail REIT that combines both Keppel Land’s malls as well as SPH’s malls.

• An EPS and ROE accretive deal. On a pro forma basis, the combined entity would see an EPS accretion of 6% for 1H21 while ROE would have been 0.3ppt higher at 5.8%. In addition, KEP stated that its ROE target of 15% for 2025 remains unchanged, and that it will continue to look to return cash to shareholders as it monetises assets. Given that KEP increased its 1H21 dividend by 4x yoy to S$0.12 despite already working on this deal in 2Q21, we do not foresee any risk to a similarly strong dividend at end-21.

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Singapore Press Holdings (SPH SP/ACCEPT OFFER/OFFER PRICE: S$2.351) – Llelleythan Tan

• ACCEPT KEP’s REVISED OFFER. KEP’s revised offer price of S$2.351/share is approximately 12% above our target price of S$2.10, valuing SPH at 1.1X P/B FY22. We reckon KEP’s premium valuation is justifiable given SPH’s attractive UK student accommodation assets, along with the resilient suburban malls in Singapore and Australia whose sales have already passed pre-COVID-19 levels.

• Highly-prized student accommodation assets. Peers in the UK, GCP Student Living and Unite Group, currently trade at around 1.2x P/B. This asset type is increasingly sought after given its resilience to COVID-19 and the reopening of international borders. These assets have also outperformed in 2HFY21 with full occupancy rates in most of their properties and are facing rising room rentals due to strong demand. Valued at about S$1.5b as of end- FY21, a potential listing of a REIT vehicle or divestment may unlock value for potential buyers.

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• Assuming a blue sky scenario, and that we raise the valuation of the student dorm assets to 1.2x book value (currently implied value of 1.0x book value, based on cap rate of 5% and 5% conglomerate discount in our SOTP-based target price), our SOTP-based target price of S$2.10/share rises to S$2.28/share, only 3% below KEP’s revised offer of S$2.351/share. • A full privatisation avoids the situation where SPH’s assets are cherry-picked, leaving SPH with its remaining debt and risk of monetising the remaining assets. The offer would appear to take an overall valuation outcome for SPH into consideration.

• Taking an overall view on valuation and shareholding structure. KEP’s involvement allows for a controlling stakeholder, which would not have been possible if the status quo was maintained. If the status quo (no offer) was maintained, the lack of controlling
ownership would not be ideal to allow the group to execute its business strategies.

• At the new offer price of S$2.351, SPH is valued at 1.1x P/B, and 20.6x 2022F PE. ACCEPT THE OFFER, barring a superior competing offer for SPH as a whole.

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