SingPost – DBS

6% yield plus stable earnings outlook

At a Glance

• 3Q10 net underlying profit of S$38.9m in line
• Management guided for up to 5% adverse impact on FY11F earnings from higher terminal dues.
• 1.25 Scents DPS declared, as expected
• HOLD with TP of S$1.05 based on 6% target yield.

Comment on Results

Net underlying profit of S$38.9m (10% qoq, 6% yoy) was in line with our expectation of S$38m. Non-cash gain of S$2.9m on recognition of intellectual property rights and S$2m gain from job credit scheme were not included in underlying net profit. The key surprise came from growth in international mail (+24% qoq) as company secured a new customer. 3Q10 also benefited from seasonal pick up at new subsidiary Quantium, which was acquired in 1Q10. Quantium contributed S$31m in revenue (up 9% qoq). Rental income also showed a slight improvement q-o-q.

Effective Jan 10, Singpost has to pay higher terminal dues for international outbound mails, as Singapore is now re-classified as a developed country in the postal world. Management guided this could have an adverse impact of up to 5% on earnings, although they would try to minimize it.

Recommendation

Dividend yield of 6% is secure while Singpost looks out for possible acquisition targets. With two small acquisitions made in 2009, Singpost is looking for more acquisitions in the logistics segments, in order to grow its business. We do not see any risk to stable earnings of Singpost and recommend HOLD for a 6% yield.

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