SingPost – DBS

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.

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