SingPost – CIMB
• In line. 2Q09 core earnings of S$38.8m (+11.4% yoy) were in line with consensus and our estimates. 2Q09 dividend of 1.25 cts/share also met our forecasts.
• 2Q09 sales +4.1% yoy to S$120.7m driven by: +2.8% mail, +6.4% logistics and +8.6% retail. Growth in logistics growth was from Speedpost, vPOST shipping transactions, warehouse, fulfilment and distribution. Retail growth was driven by financial services and agency fees. SingPost’s rental and property-related income increased by 39% to S$8.2m, driven by SingPost Centre’s higher rental income.
• Focused on cost management. Labour and volume-related expenses, which accounted for a large chunk of total opex, increased by 7.2% yoy and 4.0% yoy respectively.
• Gearing not a concern. The group has S$300m worth of bonds due in 2013. Cost of funding is at 3.13%. There is no financing concern as there is no rollover date in the short-term. We deem our forecast dividend yields as safe.
• Competition outlook. The Reference Access Offer document has been finalised by the IDA. SingPost expects margin pressure due to the liberalisation of the basic mail market and new entrants. We have included the impact of the liberalisation in our forecasts. The potential unlocking of value of Singapore Post Centre could be a catalyst.
• Upgrade to Outperform with lowered DDM-derived target price of S$0.94 (previous: S$1.20). Our FY09-11 estimates remains intact. However we align our cost of equity assumptions with house rates, resulting in higher cost of equity assumption of 8.8% (previous: 7.2%). Given that the stock price has fallen by more than 40% in the past one month, thanks to weak market sentiment, we believe that it is timely to upgrade SingPost as it continues to offer investors defensive earnings and dividend yield of more than 10%.