SingPost – OCBC

DIVIDENDS LIKELY TO REMAIN INTACT DESPITE TRANSFORMATION

Results largely in line

In midst of transformation

Declares 2.5 S cents final dividend

FY12 results largely within expectations

Singapore Post (SingPost) reported a 2.2% rise in revenue to S$578.5m but saw an 11.8% fall in net profit to S$142.0m in FY12, accounting for 101% and 95% of our full-year estimates, respectively. Administrative and other expenses, which increased 12.5% YoY and 4.2% QoQ in 4QFY12, were slightly higher than expected. On a segmental breakdown, the logistics and retail divisions posted improved revenues in 4QFY12, while mail turnover remained steady as growth in international mail and philatelic revenue offset the decline in domestic and hybrid mail contributions.

Dividends should remain intact

Besides acquiring stakes in companies to grow its businesses, SingPost invested S$9.7m in the upgrading of talent, IT systems and processes in FY12. The group is pursuing a transformation programme for its future but we do not see this impacting the group’s dividend payouts. We note that SingPost’s free cashflow payout ratio has been in the comfortable range of 60-80% since FY07, and are forecasting a 78.6% ratio for FY13F, based on an expected full-year dividend of 6.25 S cents.

Financial impact of perpetual securities

SingPost’s perpetual securities will be classified as equity for accounting purposes, but we understand it will be treated as debt from a tax perspective. The perps should not result in higher interest expense in the income statement, as the preferred dividends are paid post-tax. If, however, some of the proceeds are used to pay off debt, interest expense may even be lower. Meanwhile, the group’s gearing will be lower from a bank’s perspective.

Maintain BUY

Similar to last year, SingPost has declared a final dividend of 2.5 S cents per share, bringing the total dividend for the year to 6.25 S cents. The stock price has risen by about 9.0% since we upgraded it from Hold on 5 Jan, but we still see an upside potential of 17.3% (inclusive of a forecasted dividend yield of 6.1%) based on our DDMderived fair value estimate of S$1.14. Maintain BUY.

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