SingPost – Morgan Stanley

1QF08 Results Better than Expected; Operating Cost Pressures Remain a Concern

Conclusion: We retain our Equal-weight rating and price target of S$1.23. We like SingPost’s stable and defensive dividend yield of 6% per annum, but slowing core mail segment growth and operating cost pressures, although partially mitigated by effective management strategies, are a concern.

What’s new: SingPost reported 1QF08 net profit of S$39.5 million, a 3% improvement from 1QF07, above our expectations. Excluding the one-off gains from sale of the Boon Lay post office and gains from sale of the US business of the Spring JV in 1QF07, recurring net income improvement was higher at 13%.

Implications: With stable dividend yields of 6% per annum, we view SingPost as attractive to investors seeking refuge from market volatility. We believe that the potential unlocking of hidden value in SingPost Centre, possibly via a sale of the building, is in the preliminary stages and unlikely to occur within the next six months. Conversely, should the building be sold, we believe that this could result in a potential special dividend payment of S$0.19-0.34/share, implying a special dividend yield of 19-33% at the current share price. This would be a strong upside catalyst for SingPost stock, in our view.

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