SingPost – DBSV

New CEO (international) for regional Expansion

At a Glance

• Net profit of S$43.8m (-0.7% yoy, +10.0% qoq) and quarterly DPS of 1.25 Scents were in line.

• The appointment of new CEO for international business shows regional focus. Regional M&A and share buybacks cannot be ruled out.

• Maintain HOLD with DDM-based S$1.17 TP (cost of equity 7.7%, growth rate 2%). We have assumed that dividends can grow by 2% p.a. in the long term.

Comment on results

Net profit of S$43.8m (-0.7% yoy, +10.0% qoq) was in line. Mail segment grew strongly by 7.5% yoy on the back of direct and international mail, benefiting from higher business activities. This 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), which expired in June 2010. 9M11 earnings constitute 77% of our FY11F forecast. 3Q is typically the strongest quarter due to higher mail traffic during the festive season.

New CEO (international) to drive regionalization. As Partner at McKinsey, Dr Wolfgang Baier, has been working with Singpost for the last five years and has extensive experience in Asian and Western markets. He will be driving the logistics and retail business, which can expand further regionally. With S$200m raised through bond-issue in March 2010, Singpost has enough muscle to acquire small companies. Given that Singpost has a mandate to buy 10% of its shares, share buy backs cannot be ruled out either in our view.

Recommendation

We do not see any risk to its dividend payout and recommend HOLD with DDM-based TP of S$1.17.

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