SingPost – CIMB

Lacking catalysts for now

• In line. 3Q09 core earnings of S$36.6m (-0.5% yoy) were in line with consensus and our estimates, accounting for 24% of our full-year estimate. Revenue grew 1.6% yoy to S$124.0m. 3Q09 dividend of 1.25 cts/share met our forecast.

• 3Q09 sales up 1.6% yoy, driven by mail (+1.9%), logistics (7.2%) and retail (+11.5%). As expected, overall revenue growth was weak due to the poor economic environment. Mail revenue grew on higher volumes and increased hybrid mail contributions. Logistics revenue growth was attributed to higher warehousing, fulfilment, distribution and shipping revenue, offset by lower Speedpost revenue. SingPost continued to focus on controlling operating expenses, in particular labourrelated expenses.

• Well-positioned to defend its position. While the liberalisation of the basic mail service market in Apr 07 has increased competition, we believe SingPost is still in a strong position to defend its position as the leading postal service company. SingPost continues to hold a monopoly over stamp issues and is the only postal service company with the master-door key to all letterboxes in private apartments and HDB estates. Long term, we believe that liberalisation would have a limited impact on SingPost as the group still benefits from a much stronger brand name and an entrenched retail network, compared with the four other entrants.

• Cutting earnings by 1-7%. We have cut our FY09-11 earnings to reflect the impact of the slowing economy on business mail, express mail and retail revenue.

• Downgrade to Neutral from Outperform; lower DDM-derived target price of S$0.88 (previously S$0.94). SingPost’s share price has risen more than 18% since our upgrade last quarter. We believe that the positives have been reflected in the share price. Re-rating catalysts could include regional growth opportunities and a bigger share of the express mail market, which is still dominated by the international players. Its share price is likely to be supported by its defensive business model.

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