SingPost – UOBKH

3QFY08 earnings rose 7.8% yoy

SingPost reported 3QFY08 net profit of S$36.8m, up 7.8% yoy. Revenue rose 9.2% yoy.

Direct mail was star performer in mail segment. Mail revenue rose 9.5% (or S$8.2m) yoy, and accounted for 77% revenue share, due to mail volume increasing 11.8% yoy. This came on the back of a strong 15.6% rise in bulk mail (80% share of domestic mail), due to a) Direct Mail’s increase of 28.3% (40% share of bulk mail); and b) business and others increasing 5.6%. Public mail (balance 20% share of domestic mail), on the other hand, recorded a 3.3% yoy volume contraction. Correspondingly, mail operating profit rose 7.5% yoy.

Financial services drove retail segment. Retail revenue rose 7.9% (or S$1.1m) yoy. Financial services revenue rose 16.4%, and accounted for 31% of retail revenue.

Underlying operating margin of 37.8% is lower than 3QFY07’s 38.7%. Mail operating margin was 39.3%, narrower than 3QFY07’s 40%. Retail operating margin of 19.2% was also narrower than 3QFY07’s 20.1%, due to a drop in commission rate for agency services. Logistics operating margin of 17.5% is close to 3QFY07’s 17.8%. However, underlying operating margin of 37.8% is wider when compared against 2QFY08’s 37.1%.

Robust cashflow generation. Net cash inflow from operating activities was S$132.9m for 9MFY08, up from 9MFY07’s S$122.6m. 9MFY08 capex was a low S$10.9m, representing 3% of revenue.

High dividend yield. SingPost declared an interim dividend of 1.25¢ ps (to be paid on 29Feb08). SingPost aims to pay a minimum dividend of 5¢ ps per annum. We are forecasting 6.7¢ ps total dividends for FY08 (based on 85% payout ratio), giving a yield of 6.4%, which is higher than 3-mth SIBOR of 1.6%.

SingPost remains a BUY. SingPost is attractive based on our DCF valuation of S$1.33 per share – we have assumed a terminal growth rate of 0.7%, a WACC of 6.3% (which factors in cost of debt of 4.6% and cost of equity of 8.9%).

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