SingPost – OCBC

STILL A STALWART AMIDST GLOBAL UNCERTAINTY

  • Steady results
  • Softening margins expected
  • Bulwark amidst global uncertainty

No surprises from results

Singapore Post (SingPost) reported a set of in-line results with revenue rising 9.1% YoY to S$153.7m and net profit increasing 7.3% to S$32.9m in 2QFY13, such that 1HFY13 net profit accounted for 49.3% and 52.5% of ours and the street’s full year estimates,

respectively. Revenue grew in all three business segments of mail, logistics and retail. Rental and property-related income, however, declined by 7.0%.

Margins likely to continue to weigh

As expected, margins are slightly lower; operating margin decreased from 28.5% in 2QFY12 to 28.1% in 2QFY13 while profit margin before tax slipped from 27.3% to 26.5%. Looking ahead, we expect margins to be weighed down by cost pressures and higher revenue contribution from the lower-margin logistics business. However, the group also recognises this and has been managing inflationary cost pressures with cost management and optimisation measures. For instance, it is seeking to increase productivity by investing in new sorting machines and new technology. Non-strategic costs are also cut by outsourcing certain operations such as customer service hotlines to India and the Philippines.

Stock to hold amidst uncertain environment

We like SingPost for its stable operating cash flows and consistent dividends. At the same time, the group has launched new initiatives over the years and diversified into other business areas as well. However, the next leg of growth is heavily dependent on

management’s astute use of the group’s cash (net cash position of S$125.1m in 2FY13), including M&A opportunities. In line with its usual practice, the group has declared an interim dividend of 1.25 S cents per share for the quarter. At current price levels, we expect a dividend yield of 5.4% in FY13F. Rolling forward our valuations, our fair value estimate rises slightly to S$1.23 from S$1.20 previously. Maintain BUY.

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