SingPost – OCBC

Prioritising for the future

4QFY11 results in line with expectations. Singapore Post (SingPost) reported a 7.7% rise in revenue to S$565.5m and a 2.4% drop in net profit to S$161.0m in FY11, such that results were 0.8% and 3% shy of our estimates, respectively. However, if we were to exclude one-off items such as the amortization of deferred gain on intellectual property rights, and benefits from the Jobs Credit Scheme, underlying net profit actually rose by 1.2%. Free cash flow (net cash inflow from operating activities less capex) remained healthy at S$174.6m in FY11 compared to S$196m and S$155m in FY10 and FY09, respectively.

Decent performance from mail and logistics. The mail and logistics segments registered better performances in 4QFY11, with the former growing 4.3% YoY and the latter by 11.6%. Domestic mail traffic increased on the back of a buoyant business environment, while international mail traffic rose in tandem with the growth in e-commerce activities. Higher logistics revenue was mainly due to higher contributions from Speedpost, trans-shipment and vPOST shipping activities.

Prioritising for the future. SingPost has laid out its priorities for the future: 1) to grow regional logistics, focusing on warehousing, fulfillment and end-delivery in Asia Pacific, 2) grow the e-fulfilment business by strengthening Quantium Solutions, and 3) drive growth through e-commerce. The group is keen to grow the logistics business, and is looking at building a full suite of services in order to scale up the value chain. If executed well, this should result in higher margins compared to a company with pure logistics operations (industry is currently competitive, resulting in relatively low margins). Meanwhile, the group is also banking on the e-commerce business which holds potential for growth – Singaporeans are spending more on online shopping, purchasing from both local and overseas merchants.

Maintain HOLD. In line with the group’s usual practice, a final dividend of 2.5 S cents per share has been recommended, bringing the full year dividend to 6.25 S cents. This translates to a 5.4% dividend yield based on last closing price. We continue to like the stock for the stable cash flows and prudent management, and await more news on the M&A front. Our fair value estimate increases to S$1.21 (prev. S$1.16) as we roll forward our DCF valuation (8.11% cost of equity, 2% terminal growth). However, given limited upside potential, we maintain our HOLD rating.

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