SingPost – DBS

Potential HQ Sale is the upside

Story : According to Business Times headlines today, Singpost may sell its HQ building which is estimated to be worth S$1.0b – S$1.3b. Although the company declined to comment, if this comes true, the sale should result in a bumper dividend yield.

Point : Investors can expect dividends of 23-45 cents per share if HQ sale takes place, assuming 50%-80% payout of sales proceeds. We think that that 20%-50% of sales proceeds could be used to make acquisitions to drive growth, which management highlighted recently.

Relevance : Upgrade to BUY with a target price of S$1.35 based on breakup valuation. We prefer Singpost for its stable operations with over 6% in regular dividends and HQ sales as potential catalyst. Even if HQ sales do not materialize in the near term, downside risk is limited due to its healthy dividend yield.

Potential value of HQ building is 45-57 cents per share. The book value of HQ building is around S$300m. Assuming that HQ building can be sold for S$1.0-1.3b, it would result in divestment gains of S$700m-S$1b. With 18% tax rate on divestment gains, the cash generated from sale of HQ works out to be S$874m – 1120m or about 45 – 57 cents per share.

Fair value of Singpost without HQ building is 85 cents per share. We need to take out the rental income of S$21.5m from HQ and add the rental expenses of S$21.5, which Singpost would have to pay for its own office space. As a result FY09 net income would be lowered by 28% to S$110m. If we value this business at similar 15x earnings, it works to be S$1.65 billion or 85 cents a share.

Fair value of Singpost with HQ building. If we add the two parts together, the total value of the company would be S$1.30 – S$1.42 per share.

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