SingPost – DBSV

A role model for mature businesses

• FY13 underlying profit of S$140.9m (+4.1% y-oy) was 3% ahead of our estimates on the back of better organic and inorganic growth.
  
• FY14 to benefit from full-year contribution of acquired companies. FY14/15 EPS raised 14%/19%
  
• Upgrade to BUY with revised TP of S$1.56 as we see significant growth in addition to 4.9% yield
  

All acquired companies are profitable. FY13 sales grew 14%, leading to a 4% growth in recurring earnings. About half of the top-line growth came from newly-acquired businesses while the other half was organic in nature. Novation Solutions was acquired in May 2012 and contributed sales of ~S$23m. General Storage Company and Famous Holdings were acquired in Feb 2013 and contributed aggregate sales of ~S$20m. FY14F will benefit from the full-year contribution of these companies, all of which are profitable, although Singpost has not disclosed its profit contribution yet.

Strong free cash generation supports dividends. Singpost has spent S$179m on acquisitions over the last two years to expand into the region. More than half of this amount has been funded by its free cash flow of S$160-170m versus S$119m of dividends commitments each year. Singpost aims to raise capex over the next three years, which may result in free cash flow matching dividends. With net cash of S$91m, there is ample room to fund new acquisitions to accelerate growth.

Superior growth, dividend yield and gearing metrics. Singpost offers high-single digit growth coupled with 4.9% yield, both of which are superior to telecom stocks under our coverage. We switch to DCF (WACC 6%, terminal growth 0%) to capture growth and our revised TP of S$1.56 implies potential returns of 26%.