SingPost – DBSV
Regionalization on full drive
At a Glance
• 1Q12’s underlying net profit of S$37.3m (+0.3% YoY) and interim DPS of 1.25 Scts were inline.
• Invested c.S$65m in regional acquisitions since Jan, which should more than offset the potential decline in the mail segment in the long run
• Maintain HOLD with TP of S$1.17
Comment on Results
Net underlying profit of S$37.3m was inline with our expectations. Proposed interim DPS of 1.25 Scts as expected. Group revenue was up 2.9% yoy, mainly driven by 11% growth in logistics revenue, while mail and retail segments grew by 1.6% and 1.7% respectively. However, management highlighted that mail segment has begun to face increased pressure from e-substitution recently. Operating expenses grew by a faster 7% yoy due to 12% yoy increase in labour costs but partly offset by stable depreciation & amortization expenses.
Acquiring e-commerce, e-substitution & logistics companies. Out of S$200m raised through a bond issue in March 2010, SingPost has used S$65m to acquire stakes in six regional companies. Contribution from these acquisitions is estimated to be S$2-3m in FY12F and should grow further. This may help to buffer the potential decline in the mail segment as revenue and margins come under pressure. We would like to highlight that acquired business have lower operating margins but should help to enhance Singpost’s earnings in the long run. With the remaining invested in cash and high-yield financial instruments, Singpost has the financial muscle to acquire companies. We also expect a one-time capex of S$50m-70m for the replacement or upgrade of its mail-sorting machine. The timing is not certain, as there is a possibility that it may be delayed from 2013/14.
Maintain HOLD. Our TP of S$1.17 is based on DDM (cost of equity 7.7%, growth rate 2%). We have assumed that dividends can grow by 2% p.a. in the long term.