Author: tfwee
SingPost – BT
SingPost’s Q1 profit rises 2.9%
SINGAPORE Post saw net profit grow 2.9 per cent year on year to $39.5 million for its first quarter ended June 2008. The rise came on a 4.6 per cent increase in revenue to $120.9 million, as SingPost’s three business segments did better.
The mail business recorded 2.4 per cent growth in revenue to $93.6 million on higher traffic, while logistics revenue increased 11.8 per cent to $18 million. Growth in retail products, agency and financial services revenue contributed to a 17.6 per cent increase in retail revenue to $16.5 million.
The group’s rental and property related income was up 34.9 per cent to $7.2 million, mainly due to higher rents at Singapore Post Centre and an increase in lettable space.
Excluding one-off items, the group posted underlying net profit growth of 11.6 per cent to $38.9 million. SingPost has declared an interim quarterly dividend of 1.25 cents a share.
‘The group will continue to explore opportunities in unlocking the value of Singapore Post Centre,’ SingPost said.
SingPost – Morgan Stanley
1QF08 Results Better than Expected; Operating Cost Pressures Remain a Concern
Conclusion: We retain our Equal-weight rating and price target of S$1.23. We like SingPost’s stable and defensive dividend yield of 6% per annum, but slowing core mail segment growth and operating cost pressures, although partially mitigated by effective management strategies, are a concern.
What’s new: SingPost reported 1QF08 net profit of S$39.5 million, a 3% improvement from 1QF07, above our expectations. Excluding the one-off gains from sale of the Boon Lay post office and gains from sale of the US business of the Spring JV in 1QF07, recurring net income improvement was higher at 13%.
Implications: With stable dividend yields of 6% per annum, we view SingPost as attractive to investors seeking refuge from market volatility. We believe that the potential unlocking of hidden value in SingPost Centre, possibly via a sale of the building, is in the preliminary stages and unlikely to occur within the next six months. Conversely, should the building be sold, we believe that this could result in a potential special dividend payment of S$0.19-0.34/share, implying a special dividend yield of 19-33% at the current share price. This would be a strong upside catalyst for SingPost stock, in our view.
SingPost – JPMorgan
1Q09 in line. Waiting for catalysts
• SingPost’s 1Q FY09 results came in line with expectations: Recurring net profit accounted for 25% of our full year earnings estimate. The 2H08 issue of costs outpacing revenue growth seems to have been brought under control. Operating costs increased by 4% y-o-y mirroring operating revenue growth of 4.6% y-o-y to S$121MM. Recurring net profit for the group overall grew by 11.6% y-o-y to S$38.9MM on the back of the contribution from the non-mail divisions i.e. logistics and retail. Logistics and retail operating profit grew by 33% and 42% y-o-y respectively but only contributed S$2.8MM each whereas mail operating profit was up only 1% y-o-y to S$37.5MM.
• Operating costs seems to have been brought under control for now due to better outsourcing of volume-related costs and a reduction in SG&A. Unionized labor is still the main source of cost pressure, up 10.8% y-o-y but within expectations. Labor now accounts for 41% of total operating expenses but is still far lower than the 60-80% range of global peers. Management warns that cost pressures will continue going forward and it will do its best to counter this with increased productivity.
• As expected, SingPost declared its usual quarterly interim DPS of 1.25 cents, half of the operating cash flow for the period. We expect the company’s final year gross dividend payout to track close to its free cash flow, growing 8% a year.
• A key risk to our DCF-based Dec-08 S$1.10 PT is industry deregulation and the UN classification of Singapore as a developed country, which would imply higher postage fees for international mail. It would be very hard for any new entrant to mount credible competition, but any impact would have repercussions on the very stagnant mail business. Key catalyst for the stock is the monetization of SPC and a special dividend.
SMRT – Kim Eng
Q1FY09 results
Still keeping ahead but just barely
Revenue growth of 11% was driven by MRT and rental income. However, a 36% jump in electricity and diesel costs as well as fuel subsidies to taxi hirers eroded EBIT margin from 23% to 22.3%, leading to only 6% growth in net profit. Train profits were higher YoY but LRT, buses and taxis slipped into the red, mainly due to higher energy costs.
Higher train ridership offset by higher staff & energy costs
Train average daily ridership rose 10.9% during the quarter, boosting operating profit by 9% but gains were eroded by higher staff and electricity costs. Staff costs rose 8% due mainly to headcount of 230 engineers added (another 100 to go) for Circle Line Stage 3 which will be revenue-ready by June 2009, as well as salary adjustments and the 1.5%-point hike in employer’s CPF rate in July 2007.
Energy costs still a big headache
The high cost of diesel is still a big headache for SMRT. If diesel price remains high, buses and taxis in particular will operate at a loss. For taxis, SMRT provides direct subsidies to its taxi hirers to the tune of almost $1m in Q1FY09. It currently does not engage in any hedging as prices are still too volatile.
Saved by rental income
Fortunately, aggressive growth in rental income from commercial spaces at MRT stations (+47% in Q1FY09) as a result of better rental yield and more space following asset enhancement exercises helped to recover some of the gains SMRT gave up to energy and staffing costs. Management expects an incremental $10m rental revenue this year as it is still in the process of upgrading seven more station.
Dividend decent but no catalysts, maintain HOLD
Dividend yield is projected at 4.7% this year, decent but nothing to shout about. While management is hopeful that the PTC will allow a fare increase later this year, it is unlikely to fully cover higher operating costs. Given the lack of catalysts, we maintain our HOLD call.