SPH shareholders should accept Cuscaden's current offer: analysts

“With the new revised offer by Cuscaden, SPH is valued at 1.1 times FY2022 price-to-book (P/B), and 21.5 times/21.8 times FY2022 price-to-earnings (P/E). Given higher total consideration, larger cash component, better price stability and Keppel’s revised offer of $2.351/share being final, we recommend shareholders to accept the highest offer which is currently Cuscaden’s offer, barring a superior competing offer for SPH as a whole,” write Tan and Cheong.

SPH has also acknowledged that the consortium’s offer is superior to Keppel’s offer; both parties have entered into an implementation agreement.

Once Cuscaden’s scheme is approved, the consortium would be obligated to make a mandatory general offer for SPH REIT at 96.4 cents a unit. It is not obliged to offer anything higher.

The higher offer comes as no surprise to UOB Kay Hian’s Tan and Cheong due to SPH’s high-quality retail and commercial assets.

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“With 99% overall occupancy, a healthy portfolio weighted average lease expiry (WALE) of 5.4 years (NLA) and 2.7 years by gross rental income (GRI), we reckon that large property and real estate managers such as Cuscaden would find these assets attractive when merged with their own respective portfolios,” they write.

SPH’s student accommodation assets, which are valued at around $1.5 billion as at end-FY2021, may unlock value for potential buyers with the potential listing of a REIT vehicle or divestment, they add.

CGS-CIMB Research analysts Lim Siew Khee, Eing Kar Mei and Lock Mun Yee think SPH shareholders are likely to go for Cuscaden’s revised scheme.

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“At $2.40 per share, the offer values SPH at $3.9 billion or 1.1 times price-to-net asset value (P/NAV) which is a superior offer to Keppel’s revised scheme consideration of $2.351 per share ([comprising] 86.8 cents cash, 0.596 units in KREIT and 0.782 units in SPH REIT),” write the CGS-CIMB analysts on Nov 15.

“Cuscaden’s scheme consideration will not be adjusted for SPH’s FY2021 final dividend of 3 cents per share or any break fee payable to Keppel,” they add.

The way the CGS-CIMB analysts see it, Keppel is still able to counter Cuscaden’s offer with a general offer, but the scenario is “unlikely”.

“Keppel’s proposed scheme is valid until Dec 8 if there is no delay. With this deal likely to be off for Keppel, the group may have to look harder to find similar assets that yield recurring income. Its asset monetisation plan of $5 billion by 2023 is unaffected,” write the CGS-CIMB analysts.

“The next catalyst investors should look out for is the divestment of Keppel’s offshore & marine business, sometime in December to February 2022. In the near term. Keppel’s share price could move sideways,” they add.

Should the Cuscaden scheme proceed, the analysts see that the price overhang on Keppel REIT will be removed, while SPH REIT’s price would be capped at the mandatory offer price of 96.4 cents by Cuscaden in the near term.

“However, the potential higher free-float and merger between SPH REIT and any of the REITs (Mapletree Commercial Trust/CapitaLand Integrated Commercial Trust) under Cuscaden would serve as a re-rating catalyst for SPH REIT,” they write.

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PhillipCapital senior research analyst Terence Chua says SPH shareholders are likely to go for Cuscaden's offer despite the certainty in Keppel's offer. Keppel's offer will also provide an earlier payout to SPH shareholders.

Cuscaden's offer "provides a higher total consideration value and value certainty", notes Chua in a Nov 18 report.

"Depending on the final proportion of SPH shareholders electing to receive SPH Reit units, a chain offer for SPH Reit may be triggered," he writes.

Chua has kept "buy" on Keppel Corp with an unchanged target price of $7.07, which translates to 1.0 times Keppel's FY2022 book value, in line with its five-year average.

"We valued the group based on the four new segments unveiled during Vision 2030 to better reflect the group’s reporting segments going forward... The next catalyst investors should look out for is the proposed merger of Keppel O&M and Sembmarine."

Shares in SPH closed 4 cents higher or 1.72% up at $2.37, while shares in Keppel closed flat at $5.31 on Nov 16.

See also:

• Keppel Corp makes $2.2 bil offer to acquire SPH's non-media portfolio; SPH valued at $3.4 bil
• Keppel raises offer for SPH to $2.351 per share, tops Cuscaden Peak's $2.10
• SPH shareholders should accept Keppel's offer as respective REITs see rally: UOB Kay Hian
• Cuscaden confirms chain offer for SPH REIT, if made, will be 96.4 cents
• With a surprise all-cash potential bid, what does Temasek-linked consortium see in SPH?
• Consortium comprising Mapletree, CLA, Ong Beng Seng and Hotel Properties make rival offer for SPH
• With potential SPH merger, analysts ask if Keppel REIT is the hunter or the hunted
• UOB Kay Hian calls SPH FY21 results 'a stark rebound', recommends investors accept Keppel's offer
• Property-focused SPH to be acquired by Keppel after hiving off media assets
• Proposed privatisation deal of SPH by Keppel Corp 'seems fair': analysts
• Cuscaden ups offer for SPH to $2.40 per share, enters into implementation agreement with SPH