SingPost – CIMB

Logistics revenue boosted topline

• Maintain Neutral; DPS assumptions raised given an improving macro outlook. We have raised our earnings estimates by 3-5% on higher logistics revenue assumptions. 2Q10 earnings of S$40.5m (+8.3%% yoy) are in line with consensus and our estimates, accounting for 27.8% of our full-year estimate. Revenue beat our expectations, growing 7.9% yoy to S$130.3m, thanks to contributions from Quantium Solutions Group (formerly known as G3 Worldwide Aspac Pte Ltd). However, the positive impact was negated by a slightly higher-than-expected tax rate. As expected, 2Q10 dividend was 1.25cts/share. 1H10 earnings account for 54% of our full-year estimate. Our DDM-derived target price rises to S$1.09 (discount rate: 7.4%) from S$0.88 after accounting for our higher DPS assumptions and aligning discount rates with our house rates. Although dividend yields are attractive at 7%, we remain Neutral on the stock given a lack of catalysts.

• Quantium boosted logistics revenue. 2Q10 mail revenue slipped 4.4% yoy on declines in hybrid, philatelic and international mail though domestic revenue rose 0.5% yoy. Logistics revenue growth of 142.1% was attributed to the inclusion of Quantium. Retail revenue grew 2.2% yoy with the help of all segments. Rental and property-related income jumped 23.1% yoy to S$10.1m, thanks to higher rental income from SPC (more than 97% occupancy) and the leasing of space at repurposed post office buildings.

• Outlook. SingPost will continue to focus on direct mail expansion. It will also continue to look out for suitable acquisition opportunities. Starting 1 Jan 2010, Singapore will be reclassified as a New Target Country (from Developing Country) by the Universal Postal Union, which will result in higher net terminal dues payments for international mailing (terminal dues payable by Target Countries are generally steeper). SingPost says the annualised impact is about 5% of underlying net profit. This has been factored into our estimates.

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