SingPost – DBSV

S$179m spent on acquisitions so far

3Q13 underlying profit of S$39.8 (+2% y-o-y, 22% q-o-q) and interim DPS of 1.25 Scts were in line

Acquired two more companies for S$97m, taking amount spent on acquisitions to S$179m over the last two years

Limited disclosure on acquisitions so far. The stock is not cheap at 17x PE. HOLD with revised TP of S$1.14.

Highlights

Divergence between revenue and operating profits. Top line grew 14% y-o-y versus a decline of 3% in operating profits. E-commerce activities for all the segments and new contribution from Novation Solutions (acquired in May 2012) were key drivers of top-line growth. Corporate overheads seem to be the main culprit as operating profits were up across all the segments but group operating profit was still down.

Two more acquisitions in logistics sector recently. In Dec 2012, Singpost paid S$37m for a 100% stake in General Storage Pte Ltd which operates a self-storage business in Singapore, and also carries net debt of S$15m on its books. In Jan 2012, Singpost agreed to pay S$60m for a 62.5% stake in Famous Holdings Pte Ltd which is a freight consolidator and forwarder with offices in six countries. Both the acquisitions aim to consolidate Singpost’s position in the logistics space in the region.

Limited disclosure on acquisitions. Singpost has not disclosed earnings or PER multiples, making it difficult for us to track the progress. The acquisitions are funded by S$350m of perpetual bonds issued in Mar 2012, accounted as equity in our model.

Recommendation

Not cheap at 17x PER, maintain HOLD at revised TP of S$1.14. We adjust long-term growth rate to 0.5% (as evident from 9M12) from 0% earlier while cost of equity remains at 6% in our DDM

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