SingPost – Kim Eng

Still waiting for fresh catalysts

Event

• SingPost did as well as can be expected. In other words, we expected its mail business to reflect the current economic strength, and it did. But the logistics and retail businesses did not do so well profitwise due to lower margin components coming to the fore. If this is the best it can do despite the economy firing on all cyclinders, then it needs to move faster on its regionalisation and diversification plans. Perhaps the recent management restructuring will speed things along. Meanwhile, HOLD for the yield of 5+%.

Our View

• Net profit of $43.8m was flat YoY. Underlying net profit, excluding oneoff items such as the $2.9m amortisation of deferred gain on IP rights and benefits from the Jobs Credit scheme which ended in June 2010, was lower at $40.9m, though still 5% higher from a year ago. The usual quarterly dividend of 1.25 cents was also declared.

• Mail business did the best on stronger domestic, international and hybrid mail volume, with EBIT growth outpacing revenue growth. However, Logistics margins were affected by lower margin activities such as transhipment as opposed to higher margin customized logistics, while Retail profit fell on lower agency and retail activities.

• Perhaps sensing investors’ impatience with its longpromised regionalisation and diversification, SingPost recently appointed two CEOs. An exMcKinsey consultant will now accelerate its expansion in the region and diversify into nonpostal businesses. Incumbent CEO Ng Hin Lee will lead postal services and strategic acquisitions.

Action & Recommendation

We maintain our HOLD recommendation, mainly for the yield of 5%. Our target price has been raised to $1.29 as we roll over to FY12, still on 15x target PE.

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