SingPost – DBSV

Slow and steady

At a Glance

FY11 underlying profit of S$149.6m and final DPS 2.5 Scts were in line

Regional M&A and share buybacks cannot be ruled out

Maintain HOLD with TP of S$1.17

Comment on Results

FY11 net underlying profit of S$149.6m (+1% YoY) was in line with our expectations. Proposed final DPS of 2.5 Scts brings FY11 DPS to 6.25 Scts, same as last year. Group revenue was up 7.7% with logistics segment growing 14%, followed by 7.1% growth for mail and a stable retail segment. Expenses, however, grew faster at 10.8% YoY due to (i) higher traffic and labour costs and (ii) higher interest costs as Singpost raised S$200m debt in March 2010.

Recommendation

Singpost is prepared to face challenges in the mail segment. Singpost would roll out a digital mail solution in 2H11 as an alternative option as physical mail is on the decline.

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. Logistics, e-fulfillment and e-commerce are three focus areas. With S$200m raised through a bond issue in March 2010, Singpost has enough financial muscle to acquire small companies regionally. Given that Singpost has a mandate to buy 10% of its shares, share buybacks cannot be ruled out either, in our view.

Maintain HOLD. Our TP of S$1.17 is based on DDM (cost of equity 7.7%, growth rate 2%). We maintain our FY12F earnings estimates and assumed annual dividend growth of 2% in the long term.

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