SingPost – UBS

Strong performance could continue

• Beneficiary of the strong economy

We expect Singapore Post’s (SingPost) revenue in coming quarters to be strong given the robust Singapore economy, which our economist estimates could grow 14.7% this year. The share price is up 11% YTD and has outperformed the local market by 9%. We think it could continue to perform as earnings could surprise on the upside. We reiterate our Buy rating and raise our price target from S$1.15 to S$1.27.

• Mail revenue to benefit from domestic strength

Historically SingPost’s revenue has correlated strongly with GDP growth, albeit with a three to six month lag. A strong growth picture is emerging from various data points including advertising revenue, tourist arrivals and credit growth, and we believe SingPost’s business should be no exception. We raise our FY11/12/13 EPS estimates from S$0.08/0.07/0.08 to S$0.09/0.09/0.09

• 6.2% yield

In addition to trading at an attractive valuation of 13x FY11E earnings, the stock has an attractive yield of 6.2%. It has historically paid out 80% of its earnings and we believe this could continue as its balance sheet remains healthy.

• Valuation: raise price target from S$1.15 to S$1.27

We derive our price target of S$1.27 from a DCF methodology, assuming WACC of 7.38% and 3% terminal growth. We explicitly forecast long-term valuation drivers using UBS’s VCAM tool