SingPost – DBSV

No surprises once again!

At a Glance

• Underlying net profit grew 12% y-o-y to S$36.5m, helped by S$1.4m forex gain and S$2.8m tax savings

• Declared 2.5 cents DPS, as expected.

• Potential investments should more than offset weakness due to higher terminal dues, in our view.

• Maintain HOLD and S$1.05 TP based on 6% target yield

Comment on Result

Net underlying profit of S$36.5m (+12% y-o-y, -7% q-o-q) exceeded our S$33m forecast because of (i) S$1.4m forex gain due to stronger regional currencies; and (ii) S$2.8m tax savings as Singpost had over-provided for taxes in previous years.

Business is on recovery path, but margins are under pressure. Revenue in all three business segments improved y-o-y, but operating margins were under pressure because of consolidation of (i) Quantium Solutions, which regional logistics business reaps lower margins, and (ii) smaller contribution from higher margin financial services.

Management on right track to face challenges ahead. Higher terminal dues could reduce Singpost’s earnings by up to 5%. Additionally, job-credit benefit would drop to S$2m in FY11F from S$7m in FY10F as the scheme will expire in June this year. However, Singpost did not include job-credit benefits in its underlying net profit. Recall that Singpost had issued S$200m 10-year notes at a fixed rate of 3.5% recently, whose proceeds could be utilized for regional acquisitions, in our view, to offset potentially weaker earnings.

Recommendation

We do not see any risk to its dividends and recommend to HOLD Singpost for the 6% yield.

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