SingPost – DBSV

Regional E-commerce player in the making

  • 1Q13 underlying profit of S$36.2m (-0.9% y-o-y, +13.8% q-o-q) was slightly below estimate due to forex losses; declared S$1.25 Scts interim DPS, in line
  • Transforming into a major E-commerce player in Asia, where it can ride on last mile delivery network of postal peers in various countries
  • Maintain BUY with a revised TP of S$1.50; has S$146m net cash for more acquisitions

1Q13 underlying profit of S$36.2m (-0.9% y-o-y, +13.8% q-o-q) was slightly below estimate due to forex losses; declared S$1.25 Scts interim DPS, in line

Highlights

Revenue grew 33% y-o-y. Excluding contribution from new subsidiaries, revenue grew 6.5%. Overall operating profit edged down 1% to S$49m as it develops the new businesses. Mail segment healthy. This segment booked S$36.8m operating profit, up 6.3% y-o-y after consolidating Novation Solutions. The Logistics segment booked S$3.3m operating profit, up 36%. But operating profit for Retail & E-commerce fell 35% to S$2.4m due to development activities. Trimmed FY14F/15F earnings by 3%. Singpost booked S$2m forex losses from its international mail & logistics businesses. It will manage forex losses more pro-actively going forward but it cannot avoid that completely.

Our View

Singpost is positioned to ride on E-commerce growth in Asia. The company is pursuing a Low-Cost-Carrier (LCC) strategy rather than speed to compete with the likes of DHL and FedEx Singpost enjoys a niche due to its access to last mile delivery network of postal peers in various countries. It has a strong balance sheet with S$146m net cash, and acquires a business only if it is earnings-accretive and provides new capabilities or geographies. Singpost has spent S$179m on acquisitions over the last few years.

Recommendation

Singpost offers mid-single digit growth plus ~5% yield. New acquisitions may give fillip to growth. Our revised S$1.50 TP (DCF: WACC 6%, terminal growth 0%) implies 20% total potential returns.

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