SingPost – DBSV
More buybacks and M&A?
At a Glance
• Net profit of S$39.7m (-2% yoy, -2% qoq) and quarterly DPS of 1.25 Scents in line
• S$200m raised through note-issue and could be used for share buybacks and M&A; hunt for new CEO is still on.
• We have assumed Singpost can grow dividends by 2% in the long term. Maintain HOLD with DDM- based TP of S$1.17.
Comment on Results
Net profit of S$39.7m (-2% yoy, -2% qoq) was in line. We highlight Singpost’s tight cost control, which almost offset the impact of higher terminal dues (about S$2-3m impact in FY11F) and absence of benefits from job credit scheme (S$5m adverse impact in FY11F) as the job credit scheme expired in June 2010.
Potential M&A may lead to earnings upside. We like to remind investors that Singpost had issued S$200m 10-year notes at fixed rate of 3.5% recently, which may be used towards regional acquisitions. Currently, Singpost has invested about S$37m in higher yielding financial instruments (likes of equity linked notes), used another S$10m for share buybacks in the last quarter while the rest is lying idle in bank-deposits.
Given Singpost’s conservative track record, we would expect the company to take small steps in deploying its cash. As the mail sector is highly regulated in most countries, it is not easy for Singpost to find a good target. Given that the company has a mandate to buy 10% of its shares, more share buybacks cannot be ruled out in our view.
We do not see any risk to its dividends. Maintain HOLD with DDM-based TP of S$1.17 (cost of equity 7.7%, growth rate 2%).