SingPost – OCBC

Growth rate depends on investment decisions

Historical analysis. Charting Singapore Post’s (SingPost) share price against the STI reveals that the ratio is currently below its historical average ever since SingPost’s IPO in 2003. If one were to hold the view that most of the easy money has been made in the high beta stocks during the stock market rebound since Mar 09, it is then likely that this ratio may stay stable or even rise (i.e. limited downside). We also did a peer comparison and found that SingPost has generally outperformed some of its peers in terms of returns over a five-year period, excluding dividends. As the group proceeds with its regional expansion plans and seeks to diversify its businesses, the stock should continue to perform well, assuming no major hiccups.

Nature of business both a boon and bane. SingPost’s resilient earnings and stable operating cash flows mean that it can weather downturns with ease, and lack of financing should not be a problem with regards to its expansion plans. Besides a cash pile of S$149m as at Dec 09, the group also recently issued S$200m worth of notes that seems well priced amidst a 3x oversubscription rate (refer to earlier report 24 Mar 2010). The onus is on management to avoid over-paying for acquisitions and to make good investment decisions, especially since there is a need to seek new business drivers to sustain growth as the domestic postal industry has limited growth prospects.

Industry updates. The stock price of Pos Malaysia [NOT RATED] surged to a 32-month high yesterday after newswires reported that Nationwide Express Courier Service Bhd may be interested in bidding for a stake in the postal company. Pos Malaysia also said it will double the price of postage stamps for standard mail weighing up to 20g to 60 sen starting 1 Jul 2010. Developments should be monitored for insights regarding the value of Pos Malaysia.

Maintain BUY. The future of SingPost over the long term hinges heavily on its ability to make astute investment decisions as it seeks new business opportunities. Meanwhile, we also like the group’s enthusiasm in pursuing new initiatives in the areas of innovation, social responsibility and its attempts to stay relevant in today’s fast changing world. With a total upside potential of about 15% (including dividend of 5.9%), we maintain our BUY rating with a fair value estimate of S$1.16.

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