SingPost Q1 gain rises 24% to $38m

Expansion in the region through tie-ups in Thailand, HK paying off

BOLSTERED by all round business growth in mail, logistics and retail, Singapore Post delivered a more than one-fifth jump in quarterly earnings. For the first quarter ended June 30, net profit for the postal operator came to $38.4 million, up 24 per cent from the previous corresponding period.

Higher contributions from domestic mail, international mail and hybrid mail saw mail revenue increase 11 per cent to $91.4 million, while logistics revenue was up 4 per cent at $16.1 million on increased Speedpost traffic and vPOST on-line shopping transactions.

SingPost said that it would continue to work on rolling the vPOST service out into the region with a recent tie-up with PayPal in Australia to reach out to their large customer base.

Retail revenue rose 11 per cent to $14.1 million, underpinned by growth in financial services offered at its branches. Retail includes agency and bill presentment services such as bill payments and financial services like remittances.

The group said that it would continue to capitalise on its retail and distribution network to offer a wider range of services, including sale of the latest Harry Potter book.

Rental and property-related income saw an 11 per cent increase to $5.3 million from higher rental rates and yield enhancement initiatives at SingPost Centre.

All in, revenue grew 10 per cent to $115.5 million. Earnings per share rose to 1.998 cents from 1.617 cents. Total expenses were up 8 per cent to $79.5 million, as a result of higher labour and volume-related costs as well as selling expenses, due to increased business activities.

SingPost group CEO Lau Boon Tuan said: ‘In the first quarter, the group continued to pursue various initiatives to maintain our growth momentum.’

These initiatives included enlarging its presence in the region, such as in the area of hybrid mail services. In May, it said that it signed a cooperation agreement with Hongkong Post for the hybrid mail business in Hong Kong followed by the signing of a joint venture agreement with the Thai British Security Printing Public Co Ltd to provide hybrid mail services in Thailand.

The basic domestic and international mail services were opened up to competition on April, ending SingPost’s 15-year monopoly. Changes made to the Postal Services Act had been passed by Parliament earlier this month.

SingPost shares rose two cents or 1.6 per cent yesterday, ending at $1.24.

Multiple drivers in place

Excluding one-off gains, net profit grew significantly. Excluding one-off gains of S$3.4m from the sale of the US business of Spring JV and disposal of property in Singapore, net profit came in at S$34.9m, up 15% y-o-y. Revenue grew 10% y-o-y to S$116m with growth registered across all three-business segments. Mail segment registered the strongest growth of 11% in revenues, partly due to the higher traffic and partly due to the fee hike in public and international mail. Retail and logistics segments continued to grow at a healthy pace.

Property sales could lead to higher final dividends. Singpost has already made a gain of S$7.1m from the sale of two of its HDB shop units. Management periodically reviews the opportunity to optimize its shop locations and make gains if possible. Singpost still owns about 15 shop units, which can be sold for gains in a buoyant property market. We estimate that another 4-5 shop units could be sold for gains in the next 1-2 years. With 80-90% of the net profit to be paid out as dividends, we think dividend yield would be around 6% for FY08. With 1.25 cents interim dividend payout every quarter, final dividend should be around 3-3.5 cents. Additionally there could be capital reduction or special dividends at the end of FY08, as there is room for Singpost to increase its net debt to equity ratio to 1.5x-2.0x from projected 0.8x in FY08. This could lead to additional 6-12 cents in cash returns.

Multiple drivers for growth – both short and long term. Financial services such as remittance, insurance, ezyCash along with property services, are expected to drive over 10% growth in earnings in the retail segment this year. Speedpost service and vPOST transactions are expected to help grow logistics services by over 5%. Mail segment should see over 8% growth in earnings from direct mail, international mail and corporate mailroom acquisitions. In the long term (2-5 years), the company would benefit from expansion into new markets – such as Hong Kong, Thailand and Malaysia – for hybrid mail and vPOST business.

Financial Data

All the data are extracted from the results,

Notes :

• * – Special Div = 10cts for Q2 (Sep-05)
• All figures in S$,000 unless otherwise stated
• FY is end-Mar

Result Highlights

• The Group posted a 10.0% growth in revenue from S$105.1 million to S$115.5 million, with all three business segments achieving improved performances.
  ♦ Mail – Revenue increased 10.9% from S$82.4 million to S$91.4 million, on the back of higher contributions from domestic mail, international mail and hybrid mail. The first quarter included one-off mailings such as the GST Offset Package.
  ♦ Logistics – Revenue was up 3.8% from S$15.5 million to S$16.1 million on increased Speedpost traffic and vPOST on-line shopping transactions.
  ♦ Retail – Revenue rose 10.6% from S$12.7 million to S$14.1 million, underpinned by growth in financial services.
• Rental and property-related income showed an 11.4% increase from S$4.8 million to S$5.3 million. The Group continued to benefit from higher rental rates and yield enhancement initiatives at SingPost Centre.
• Miscellaneous income rose by 157.5% from S$0.8 million to S$2.1 million. During the first quarter, the Group recorded a gain of S$1.9 million from the disposal of a non-core property.
• Total expenses increased by 8.0% from S$73.6 million to S$79.5 million, as a result of higher labour and related costs, volume-related costs as well as selling expenses, which rose in tandem with increased business activities. Finance expenses declined by 15.4% from S$2.7 million to S$2.3 million as the Group fully repaid the bank term loan obtained in March 2006.
• The Group achieved a 15.3% growth in operating profit from S$39.4 million to S$45.5 million, with all business segments contributing to the improvement. Mail operating profit rose by 14.3% from S$32.5 million to S$37.2 million, on good operating leverage, while Logistics operating profit improved by 7.6% from S$1.9 million to S$2.1 million. In Retail, operating profit rose by 11.9% from S$1.8 million to S$2.0 million.
• The Group’s share of profit from the Spring JV included a one-off gain of S$1.5 million from the sale of its US business. Excluding the one-off gain, contributions from the Spring JV rose by 10.7% or S$0.1 million from S$1.4 million to S$1.5 million.
• As a result of the good operational performance, the Group achieved a 24.0% increase in net profit from S$30.9 million to S$38.4 million. Excluding gains from the disposal of non-core properties and the one-off gain on the sale of the US business by the Spring JV, the Group’s underlying net profit showed a 14.9% growth from S$30.4 million to S$34.9 million.

Forward Statements

• Believes it is well positioned to address the challenges of the deregulation of the basic mail services market
• Actively pursuing and implementing initiatives to enhance and grow its core business of Mail and Logistics
• Diversification strategy – Will continue to leverage its retail and distribution network to offer higher value products and services to customers
• Continue to extend its regional reach with initiatives to roll out and grow the hybrid mail and vPOST businesses in the regional markets

Source : SGX