SingPost – OCBC

Steady 3QFY11 results

3QFY11 results in line with expectations. Singapore Post (SingPost) reported a 6.3% YoY rise in revenue to S$148.5m and a 0.7% drop in net profit to S$43.8m in 3QFY11, such that 9MFY11 net profit accounted for 74.7% of our full year estimates and 78.5% of Bloomberg’s mean consensus. Excluding one-off items such as amortization of deferred gain on intellectual property rights and benefits from the Jobs Credit Scheme (in 3QFY10), underlying net profit increased 5.1% YoY to S$40.9m.

Growth in mail and logistics businesses. Mail revenue grew 7.5% YoY on the back of strong growth in the direct mail business and better economic conditions, while international mail was underpinned by growth in e-commerce activities. More transshipment and vPOST shipping activities contributed to the 10.2% YoY increase in logistics revenue, but operating profit from this division declined as transshipment generally has lower margins.

Diversifying its businesses and markets. Management reiterated that it continues to face “formidable challenges” in the postal industry, driven by factors such as e-substitution. With the global trend of declining mail volumes, the group wants to reduce its reliance on mail revenue and diversify its revenue base. Indeed, the mail division’s contribution to total revenue has fallen steadily from 77% in FY08 to 68% in 9MFY11. However, being Singapore’s dominant postal operator, SingPost will still focus on the mail business to meet the changing and growing needs of its customers, while expanding its logistics and retail divisions. The group is also exploring acquisition opportunities to grow its businesses in the region.

Maintain HOLD. To accelerate the group’s transformation and growth, SingPost has announced an organizational restructuring in which there will be a CEO in charge of Postal and Corporate Services while another CEO will focus on the international business. We are positive on this latest development as the segregation of duties should result in a sharper focus on both the mail business (faces own challenges in the industry) and the group’s international expansion efforts (essential to seek new growth drivers). Meanwhile, we continue to await news on the M&A front. An interim dividend of S$0.0125/share has been declared, in line with the group’s usual practice. Though the stock has an estimated dividend yield of 5.3%, there is limited upside potential to our DCFbased fair value estimate of S$1.16. Hence we maintain our HOLD rating.

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