SingPost – OCBC

FY10 results within expectations

Results within expectations. Singapore Post (SingPost) reported a 9.2% rise in revenue to S$525.5m and a 10.9% increase in net profit to S$165.0m in FY10, both within 4% of our full-year estimates. However, net profit was better than the street’s expectations (S$153m Bloomberg consensus). In 4QFY10, group revenue rose by 15.9% YoY due to improvements in all business segments (mail, logistics, retail), as well as inclusion of revenue of Quantium Solutions. Excluding Quantium’s consolidation, revenue rose by 3.8%. Rental and property-related income also grew by 5% to S$10.2m with higher rental income from the Singapore Post Centre and leasing of space at repurposed post office buildings.

Better outlook. The outlook for the group is now better with a pick up in business activities. SingPost’s earnings are directly dependent on the performance of the Singapore economy, with more than 95% of its profits coming from the island. Just last month, the official growth forecast of the economy was upgraded from 4.5-6.5% to 7-9% for 2010 after 1Q10 GDP expanded strongly by 13.1% YoY. However, SingPost maintains a “cautiously optimistic” outlook given the challenges facing the postal industry as a whole. The group is also looking to diversify its contributions from overseas markets to expand its non-mail business.

Seeking growth opportunities. The group said that it has been actively exploring investment and business opportunities in Singapore and the region. SingPost has a strong cash position of S$390m as at 31 Mar 2010, aided by its recent S$200m bond issuance, which the group will allocate between financing new investments (bulk of proceeds), anticipated capex and working capital requirements. The market is likely looking forward to expansion-related announcements but we do hope that any acquisition 1) is not made just for the sake of acquisition, 2) value-creation will happen, 3) new development leverages on the group’s core competencies and 4) avoid overpaying as with any acquisition.

Maintain BUY. The search for the CEO is still ongoing, but the group’s management has veterans in the relevant industries, which should keep operations running smoothly. Occupancy at the Singapore Post Centre also remains high at 98.6%. A dividend of S$0.025/share has been declared, bringing the full year payout to S$0.0625/share, same as FY09’s. With a total expected return of about 12% (including 5.7% expected dividend yield), we maintain our BUY rating on SingPost with a DCFbased fair value estimate of S$1.16.

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