Author: tfwee
SingPost – DBS
Multiple drivers in place
Excluding one-off gains, net profit grew significantly. Excluding one-off gains of S$3.4m from the sale of the US business of Spring JV and disposal of property in Singapore, net profit came in at S$34.9m, up 15% y-o-y. Revenue grew 10% y-o-y to S$116m with growth registered across all three-business segments. Mail segment registered the strongest growth of 11% in revenues, partly due to the higher traffic and partly due to the fee hike in public and international mail. Retail and logistics segments continued to grow at a healthy pace.
Property sales could lead to higher final dividends. Singpost has already made a gain of S$7.1m from the sale of two of its HDB shop units. Management periodically reviews the opportunity to optimize its shop locations and make gains if possible. Singpost still owns about 15 shop units, which can be sold for gains in a buoyant property market. We estimate that another 4-5 shop units could be sold for gains in the next 1-2 years. With 80-90% of the net profit to be paid out as dividends, we think dividend yield would be around 6% for FY08. With 1.25 cents interim dividend payout every quarter, final dividend should be around 3-3.5 cents. Additionally there could be capital reduction or special dividends at the end of FY08, as there is room for Singpost to increase its net debt to equity ratio to 1.5x-2.0x from projected 0.8x in FY08. This could lead to additional 6-12 cents in cash returns.
Multiple drivers for growth – both short and long term. Financial services such as remittance, insurance, ezyCash along with property services, are expected to drive over 10% growth in earnings in the retail segment this year. Speedpost service and vPOST transactions are expected to help grow logistics services by over 5%. Mail segment should see over 8% growth in earnings from direct mail, international mail and corporate mailroom acquisitions. In the long term (2-5 years), the company would benefit from expansion into new markets – such as Hong Kong, Thailand and Malaysia – for hybrid mail and vPOST business.
SingPost – Q108
Financial Data
All the data are extracted from the results,
Notes :
- * – Special Div = 10cts for Q2 (Sep-05)
- All figures in S$,000 unless otherwise stated
- FY is end-Mar
Result Highlights
- The Group posted a 10.0% growth in revenue from S$105.1 million to S$115.5 million, with all three business segments achieving improved performances.
♦ Mail – Revenue increased 10.9% from S$82.4 million to S$91.4 million, on the back of higher contributions from domestic mail, international mail and hybrid mail. The first quarter included one-off mailings such as the GST Offset Package.
♦ Logistics – Revenue was up 3.8% from S$15.5 million to S$16.1 million on increased Speedpost traffic and vPOST on-line shopping transactions.
♦ Retail – Revenue rose 10.6% from S$12.7 million to S$14.1 million, underpinned by growth in financial services. - Rental and property-related income showed an 11.4% increase from S$4.8 million to S$5.3 million. The Group continued to benefit from higher rental rates and yield enhancement initiatives at SingPost Centre.
- Miscellaneous income rose by 157.5% from S$0.8 million to S$2.1 million. During the first quarter, the Group recorded a gain of S$1.9 million from the disposal of a non-core property.
- Total expenses increased by 8.0% from S$73.6 million to S$79.5 million, as a result of higher labour and related costs, volume-related costs as well as selling expenses, which rose in tandem with increased business activities. Finance expenses declined by 15.4% from S$2.7 million to S$2.3 million as the Group fully repaid the bank term loan obtained in March 2006.
- The Group achieved a 15.3% growth in operating profit from S$39.4 million to S$45.5 million, with all business segments contributing to the improvement. Mail operating profit rose by 14.3% from S$32.5 million to S$37.2 million, on good operating leverage, while Logistics operating profit improved by 7.6% from S$1.9 million to S$2.1 million. In Retail, operating profit rose by 11.9% from S$1.8 million to S$2.0 million.
- The Group’s share of profit from the Spring JV included a one-off gain of S$1.5 million from the sale of its US business. Excluding the one-off gain, contributions from the Spring JV rose by 10.7% or S$0.1 million from S$1.4 million to S$1.5 million.
- As a result of the good operational performance, the Group achieved a 24.0% increase in net profit from S$30.9 million to S$38.4 million. Excluding gains from the disposal of non-core properties and the one-off gain on the sale of the US business by the Spring JV, the Group’s underlying net profit showed a 14.9% growth from S$30.4 million to S$34.9 million.
Forward Statements
- Believes it is well positioned to address the challenges of the deregulation of the basic mail services market
- Actively pursuing and implementing initiatives to enhance and grow its core business of Mail and Logistics
- Diversification strategy – Will continue to leverage its retail and distribution network to offer higher value products and services to customers
- Continue to extend its regional reach with initiatives to roll out and grow the hybrid mail and vPOST businesses in the regional markets
Source : SGX
SMRT – KE
Picking Up Speed
♦ Higher ridership propelling growth
SMRT delivered a strong set of operating results: revenue and operating profit grew 7.8% and 27.6% yoy respectively. Net profit increased 38.8% yoy, bolstered by lower finance costs and higher interest and investment earnings. All business segments posted higher operating profits led by the MRT segment. The MRT, LRT and Bus segments experienced higher ridership. Growth was, however, greatest in the MRT segment, with ridership up 6.9% yoy. We are thus raising our full-year growth forecast for MRT ridership from 3% to 6.9% and our FY08F net profit estimate from $134.6m to $141.7m.
♦ Strong economy bodes well for ridership, rental and advertising
SMRT attributed the increase in ridership to Singapore’s strong economic growth. Assuming Singapore’s economy will sustain its growth momentum, we expect the growth momentum of ridership to continue into FY10. Rental and advertising segments are also benefiting from the strong economy and would provide additional growth to SMRT. We forecast operating profit (a better representation of core earnings) – led by the MRT segment – to grow at an annual average rate of 14% from FY08–10. We maintain our view that SMRT presents a steady if unexciting long-term growth story as Singapore’s population grows progressively to 6.5m, as well as the introduction of new MRT lines.
♦ Improvements in lagging segments
The Taxi segment improved significantly as operating loss narrowed to $0.3m in 1QFY08 from $3.2m in 1QFY07. Higher ridership also reduced losses in the LRT segment. While we foresee the LRT segment to turn around this year on higher ridership, we remain cautious about the growth of the Taxi segment’s ridership given Singapore’s competitive taxi industry. Though the performance of the Taxi and LRT segments have improved, we do not expect them to contribute meaningfully to overall operating profit.
♦ Share price has been trending down
SMRT’s share price has been trending downwards from $1.92 on 16 July to $1.76 on 27 July. We think that this could be because investors were being more cautious in a generally volatile market and were consequently more skeptical about the “transport sector restructuring” story. We arrived at our target price of $1.48 from blending these two valuation approaches: 1) implied FY08 yield of 5.5%; and 2) 17x FY08 PER. Reiterate SELL.
SMRT – DBS
Smooth operator
Comment on Results
1Q08 results were above expectations, with net earnings up by 39% yoy to S$38m, on top line growth of 7.8% yoy to S$194m. Revenue growth was broad-based, led by 9.1% yoy top line growth in train operations, as well as higher contributions from taxi (+11.4%), Rental (+18.4%) and Advertising (+44%). The better than expected performance came from much improved taxi operations, which saw losses narrow from S$3.2m a year ago to less than S$300k in this quarter.
Outlook
Other than absorbing a GST rate hike of 2 percentage points beginning from 1 July, we believe that the operating environment for SMRT is largely benign. Train rider-ship growth remains firm whilst the Group’s rental and advertising business is also benefiting from buoyant ad spend, underpinned by a firm economy. The taxi business is also showing signs of recovery,which we believe is critical to helping the Group perform better than we expect. Another good showing in Q2 would convince us that the taxi business can be profitable for the Group once again.
Recommendation
Currently trading at over 20x earnings, and offering a net yield of c. 4%, we believe that valuations for SMRT are fair. We maintain our HOLD recommendation and target price of S$1.67, which is based on a target net yield of 4.5% for FY09. Given this strong set of 1Q08 results though, there may be potential for an earnings and target price upgrade if SMRT can continue do execute well