SingPost – OCBC

Resilience is the word

Results in line with expectations. Singapore Post (SingPost) reported creditable results amid a challenging environment, with revenue increasing 1.6% YoY to S$124.0m and net profit declining marginally by 0.5% to S$36.7m in 3Q09. This is in line with our expectations as both YTD revenue and net profit comprised 75% of our FY09 estimates. Revenue grew in all three business segments, with retail enjoying 5.5% growth, followed by logistics at 2.1% and mail at 1.5%. Rental and property-related income grew by 34% due to higher rental income from the Singapore Post Centre (SPC) and contributions from leasing of space at re-purposed post office
buildings.

Slowing economy, but there are things to cheer about too. The slowing global and domestic economy will undeniably impact SingPost’s financials, and indeed the group’s 3Q08 selling expenses rose by 43.5% YoY as higher provisions were made for doubtful debts. However, several measures unveiled by the recent Budget such as the Jobs Credit Scheme, reduction in corporate tax and property tax rebates will benefit SingPost as well. We are also seeing very proactive measures by the group to counter the downturn, such as greater cost containment, new services to spur revenue, as well as continued measures to re-purpose post offices.

Cost management is the key. The group stepped up on cost management measures in the last quarter, such that all categories of costs except selling expenses moderated in growth. Labour and related expenses grew by 4.9% YoY compared to 7.2% in 2Q09 as SingPost kept a lid on temporary and contract labour costs, which is expected to moderate in the coming quarters. Tighter cost control in other areas such as promotional and marketing activities also resulted in lower expenses.

Maintain BUY. The slowing global and domestic economy is probably the main concern for most stocks, including SingPost, but the defensive nature of the group’s business means it will outperform the rest in a deteriorating and uncertain environment. Having taken into consideration weaker economic conditions and factors cushioning the decline in the group’s financials, we are maintaining our estimates and therefore keep our fair value estimate of S$0.93. As such, we maintain our BUY recommendation for SingPost. A quarterly dividend of S$0.0125 per share will be paid, sticking to SingPost’s dividend policy of minimum S$0.05 per share a year, implying at least a 6.5% yield.

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