DIVIDENDS LIKELY TO REMAIN INTACT DESPITE TRANSFORMATION

•Results largely in line

•In midst of transformation

•Declares 2.5 S cents final dividend

FY12 results largely within expectations

Singapore Post (SingPost) reported a 2.2% rise in revenue to S$578.5m but saw an 11.8% fall in net profit to S$142.0m in FY12, accounting for 101% and 95% of our full-year estimates, respectively. Administrative and other expenses, which increased 12.5% YoY and 4.2% QoQ in 4QFY12, were slightly higher than expected. On a segmental breakdown, the logistics and retail divisions posted improved revenues in 4QFY12, while mail turnover remained steady as growth in international mail and philatelic revenue offset the decline in domestic and hybrid mail contributions.

Dividends should remain intact

Besides acquiring stakes in companies to grow its businesses, SingPost invested S$9.7m in the upgrading of talent, IT systems and processes in FY12. The group is pursuing a transformation programme for its future but we do not see this impacting the group’s dividend payouts. We note that SingPost’s free cashflow payout ratio has been in the comfortable range of 60-80% since FY07, and are forecasting a 78.6% ratio for FY13F, based on an expected full-year dividend of 6.25 S cents.

Financial impact of perpetual securities

SingPost’s perpetual securities will be classified as equity for accounting purposes, but we understand it will be treated as debt from a tax perspective. The perps should not result in higher interest expense in the income statement, as the preferred dividends are paid post-tax. If, however, some of the proceeds are used to pay off debt, interest expense may even be lower. Meanwhile, the group’s gearing will be lower from a bank’s perspective.

Maintain BUY

Similar to last year, SingPost has declared a final dividend of 2.5 S cents per share, bringing the total dividend for the year to 6.25 S cents. The stock price has risen by about 9.0% since we upgraded it from Hold on 5 Jan, but we still see an upside potential of 17.3% (inclusive of a forecasted dividend yield of 6.1%) based on our DDMderived fair value estimate of S$1.14. Maintain BUY.

SingPost Q4 profit slides 17% to $30.55m

Group steps up investments in transformational programme to drive future growth; proposes 2.5-cent final dividend

SINGAPORE Post (SingPost) saw net profit for the fourth quarter ended March 31, 2012 slide 17.4 per cent to $30.55 million due to investments put towards a transformational programme to drive future growth.

"During the year, we invested in capabilities and resources in areas such as people, IT and operations and the results – revenue growth in our non-postal business, namely logistics and retail, in spite of challenging conditions – show that we are on the right track. We will continue to invest in the five business pillars – mail, digital services, logistics, e-commerce and retail & financial services," said group chief executive officer Wolfgang Baier. Some $9.7 million has been invested so far in 20 corporate-wide initiatives as part of the programme which will be executed through to FY2014/15.

Faced with a "difficult postal landscape and weaker business environment" as well as increasing cost pressures, SingPost is trying to build new revenue streams in the digital services and e-commerce businesses while pursuing growth in regional logistics and e-fulfilment.