SingPost – OCBC

Achieves better-than-expected results

Results above ours and street’s expectations. Singapore Post (SingPost) reported a 12.7% YoY (+7.2% QoQ) rise in revenue to S$139.6m and a 20.6% YoY (+8.9% QoQ) growth in net profit to S$44.1m in 3QFY10. Results were above ours and the street’s expectations as 9M10 net profit accounted for 81% of our full-year estimates and 84% of Bloomberg’s mean earnings estimate. Underlying net profit (PATMI excl. one-off items) rose 6.3% YoY to S$38.9m if we strip out S$2.9m amortization of deferred gain on intellectual property rights (recall acquisition of Postea in May 09), S$2.0m from the Jobs Credit Scheme and S$0.3m from the property tax rebate (Singapore Budget).

Mail and logistics boosted revenue. A rebound in international mail revenue contributed to the upside surprise, rising 23.7% QoQ after last quarter’s 3.4% decline. Quantium Solutions also contributed to higher logistics revenue which rose 7.9% QoQ. We understand that the international mail segment recovered with better business conditions, and also because SingPost secured new customers last quarter, which is a noteworthy fact. Management, however, is not popping the champagne yet as this segment may continue to experience pricing pressure.

Initiatives pay off. Though rental and property-related income grew 22% YoY, the extent of increase is actually much smaller on a sequential basis (+1% QoQ). Higher rental income from the Singapore Post Centre and the leasing of space at repurposed post office buildings boosted on-year income, which would have suffered if such initiatives did not take place, as we understand that average retail rental has fallen to about S$8/sq ft compared to S$15/sq ft during the peak around 2H08.

Growing its reach. SingPost has reiterated that it wants to expand its regional presence. The group currently covers 11 cities in India and is intent on growing its business there. Management also revealed that another area which may present opportunities is the Philippines. Meanwhile, SingPost also aims to grow the logistics, retail and other businesses to reduce its dependence on mail revenue. With the consolidation of Quantium Solutions, we note that the proportion of mail revenue to total sales has fallen from 77% in 4QFY09 to 68% in 3QFY10.

Maintain BUY. SingPost’s operating cash flows remain strong. We have tweaked our estimates to account for the betterthan- expected results, increasing our fair value estimate to S$1.16. With an upside potential of 14.6% and a projected dividend yield of 6.2%, we maintain our BUY rating on SingPost.

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