SingPost – CIMB

Post-dated potential

SingPost’s FY14 core net profit of S$145m met expectations at 100% of our forecast and 101% of the consensus number. Revenue growth was mainly driven by e-commerce and recent acquisitions, which helped to offset the decline in its traditional mail business. We maintain our Add rating, but trim our FY15-16 EPS forecasts to reflect higher costs. Our DCF-based target price rises to S$1.61 (WACC 7.3%) after rolling forward to FY15. Rising demand for low-cost e-commerce logistics solutions in Asia is a key catalyst. We also see upside potential from M&A activities as SingPost looks to expand its e-commerce logistics capabilities and network across the region.

Results highlights

4QFY14 revenue grew 5.9% yoy on the back of: 1) higher transhipment volumes, 2) growth in vPOST shipments, and 3) full recognition of contributions from Lock+Store and Famous Holdings, acquired in 4QFY13. Excluding the two acquisitions, organic revenue growth was 3% – slower than the run-rate of 6-9% in recent quarters due to seasonality and the sale of Clout Shoppe during the quarter. Core net profit declined marginally (-1.3% yoy) as a result of the higher restructuring and development costs (estimated S$15.5m, of which S$9m was for e-commerce and S$6.5m for the mail segment).

Ongoing e-commerce expansion

SingPost is showing promising signs of progress in the e-commerce space, with over 600 e-commerce customers now, double last year’s 300. SingPost is also rapidly expanding its overseas presence – Quantium Solutions (its primary vehicle for e-commerce logistics growth) recently set up a JV in Indonesia to provide warehousing and freight forwarding services, and Lock+Store will soon introduce its self-storage services in Malaysia. SingPost’s strong net cash position of S$170.3m (3QFY14: S$134.6m) leaves room for further acquisitions in the e-commerce logistics space, which can provide potential earnings uplift.

Maintain Add on post-transformation growth potential

SingPost declared a final DPS of 2.5 Scts, bringing total DPS to 6.25 Scts. This rewards investors with an attractive yield of 4.3% while waiting for earnings growth to come post-transformation. We think that SingPost is positioned to benefit from the rising demand for e-commerce logistics solutions in the region, given its low-cost advantage and full suite of services provided.

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