BUY: OCBC Investment Research, Kim Eng Research - Jun 08, 2004 (BT)

BackJun 08, 2004

Brokers' Take

BUY: OCBC Investment Research, Kim Eng Research

Singapore Press Holdings, June 7 closing : $20.80

Jun 08, 2004
The Business Times



THERE has been some confusion about the impact on the STI and the SiMSCI of SPH going ex-all when it starts trading today.

Let us clarify.

Take 1,000 SPH shares at $20.50. The cost will be S$20,500. After the share split, you will end up with 5,000 shares. But 15 per cent of that will be bought back and cancelled - that is, 750 shares. And shareholders will be paid S$3.82 per share in the share cancellation exercise.

At the end of the exercise, the number of shares that you will end up with after the share split and share cancellation will be 4,250 shares.

You will also end up with cash of S$2,865 from the share cancellation. Based on $20.60, we estimate the theoretical ex-price to be S$4.17.

As for the index, the whole exercise should not have any impact on either the Straits Times Index or the Singapore MSCI.

The share-split component of the exercise should not have any impact on either of the two indices.

This is simply because the decrease in share price ex-all will be compensated by an increase in the number of shares.

It is the share cancellation that will affect the indices because that will in theory wipe 15 per cent off the market capitalisation of SPH and hence could potentially affect the index unless the weightings are adjusted.

SGX has confirmed with us that they have had discussions with MSCI and had been assured the necessary adjustments would be made before trading on Tuesday.

As for the STI, SPH has quite rightly said (very much as we explained above) that the share split 'would not need any adjustment for the share sub-division since the drop in price is countered by the proportional increase in number of shares. The effect of this capital action is like that of a bonus issue.'

But with regard to the 'capital reduction through share buyback' - that is, share buyback and cancellation - component of the exercise, SPH said: 'A theoretical price will be derived and that price will be used to adjust the index at the market close of June 7 so that at start of trading on June 8, the 'new' SPH shares (ex-all), would replace the cum-all SPH shares and therefore the index calculation will go on without a spike in value. All adjustments will be done according to published index methodology.'


SPH will go 'ex-entitlement' today. The 1-into-5 stock split and 15 per cent capital reduction exercise will ex today. For every 1,000 SPH shares which each shareholder holds at the end of yesterday, he will end up with 4,250 post-split SPH shares today and will receive $2,865 in cash from SPH by June 24.

The stock-split exercise has effectively boosted the affordability of SPH shares, particularly for the retail investors.

We continue to rate the stock a BUY with a post-split price target of $5.20.