SingPost – UBS

Strong performance could continue

Beneficiary of the strong economy

We expect Singapore Post’s (SingPost) revenue in coming quarters to be strong given the robust Singapore economy, which our economist estimates could grow 14.7% this year. The share price is up 11% YTD and has outperformed the local market by 9%. We think it could continue to perform as earnings could surprise on the upside. We reiterate our Buy rating and raise our price target from S$1.15 to S$1.27.

Mail revenue to benefit from domestic strength

Historically SingPost’s revenue has correlated strongly with GDP growth, albeit with a three to six month lag. A strong growth picture is emerging from various data points including advertising revenue, tourist arrivals and credit growth, and we believe SingPost’s business should be no exception. We raise our FY11/12/13 EPS estimates from S$0.08/0.07/0.08 to S$0.09/0.09/0.09

6.2% yield

In addition to trading at an attractive valuation of 13x FY11E earnings, the stock has an attractive yield of 6.2%. It has historically paid out 80% of its earnings and we believe this could continue as its balance sheet remains healthy.

Valuation: raise price target from S$1.15 to S$1.27

We derive our price target of S$1.27 from a DCF methodology, assuming WACC of 7.38% and 3% terminal growth. We explicitly forecast long-term valuation drivers using UBS’s VCAM tool

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