SingPost Q3 net dips 5.2%; mail revenue falls 3.4%

SINGAPORE Post’s net profit slipped 5.2 per cent year on year, from $43.8 million to $41.6 million, for the third quarter ended Dec 31, 2011.

SingPost said that growth in its logistics (5.2 per cent) and retail (5.1 per cent) segments offset the decline in mail revenue, which fell by 3.4 per cent to $98 million, due to lower volumes recorded in domestic and international mail.

The higher revenue in logistics was attributable to growth in Speedpost and e-fulfilment activities. Retail revenue improved as increased contributions from retail products and online store Clout Shoppe offset the drop in agency services and financial services.

Rental and property-related income increased 1.1 per cent from $10.6 million to $10.7 million with higher rental income from Singapore Post Centre.

Total expenses for the quarter rose 3.6 per cent to $114.5 million, with approximately $2.7 million going to the ‘upgrading of talent, IT systems, and operations to drive future revenues’.

Earnings per share for Q3 2011 were 2.2 cents, down from 2.281 cents a year before.

For the nine months ended Dec 31, 2011, net profit dropped 10.1 per cent to $111.4 million, while revenue rose 1.9 per cent to $432.6 million.

SingPost group chief executive officer Wolfgang Baier said: ‘Globally, the postal industry has been struggling in the face of industry-specific challenges and now, it has become even more challenging with the weakening economy.’

‘What’s in our favour is our strong foundation which puts us in a good position to invest for growth,’ Dr Baier added.

SingPost said it is pursuing opportunities in e-commerce fulfilment, while expanding its vPOST reach in the region.

Dr Baier said: ‘We are mindful that, even as we continue to invest for growth, cost management will remain a key focus.’

The company has declared an interim quarterly dividend of 1.25 cents per ordinary share, to be paid on Feb 29.

SingPost fell half a cent to close trading at 98 cents per share yesterday.

SingPost to acquire Novation for US$9.8m

SINGAPORE Post Ltd yesterday announced that it is acquiring Hong Kong-based Novation Solutions Ltd for US$9.8 million (approximately S$12.7 million), through its wholly owned subsidiary, DataPost Pte Ltd.

DataPost’s purchase of Secured Financial Services Ltd’s entire 100 per cent stake in Novation will be satisfied wholly in cash upon completion, and is to be funded from SingPost’s internal resources.

The completion date of the proposed acquisition is expected to take place on or around Feb 29, upon which Novation will become a wholly owned subsidiary of SingPost.

Novation is a full-service security printing, document management, and transaction mail provider in Hong Kong. Its core services include security and commercial printing and services like variable-data print and electronic direct marketing services. Novation is also present in China.

Wolfgang Baier, SingPost’s group chief executive officer, said that the acquisition is in line with the company’s strategy to grow its digital and hybrid mail business locally and in the region.

‘In transforming SingPost, we have identified digital services as one of our five key business pillars. With this acquisition, we will leverage our combined expertise for expansion into document management and digital printing,’ said Dr Baier, adding that Novation will help to expand SingPost’s footprint in Hong Kong.

As at Dec 31, 2010, the net tangible asset value of Novation was HK$94.3 million (about S$15.7 million). SingPost said that Novation is profitable, and that the proposed acquisition will be on a debt-free basis since Novation has not incurred any debt according to its recent consolidated accounts. The acquisition will not have a material impact on SingPost’s earnings.

SingPost has been expanding its digital and hybrid mail business in the region over the years. Just last year, it acquired a 20.82 per cent stake in Efficient, a Malaysian company which has its core business in business process outsourcing.

SingPost’s shares fell 1.5 cents yesterday to close trading at 95.5 cents per share.

SingPost to acquire Novation for US$9.8m

SINGAPORE Post Ltd yesterday announced that it is acquiring Hong Kong-based Novation Solutions Ltd for US$9.8 million (approximately S$12.7 million), through its wholly owned subsidiary, DataPost Pte Ltd.

DataPost’s purchase of Secured Financial Services Ltd’s entire 100 per cent stake in Novation will be satisfied wholly in cash upon completion, and is to be funded from SingPost’s internal resources.

The completion date of the proposed acquisition is expected to take place on or around Feb 29, upon which Novation will become a wholly owned subsidiary of SingPost.

Novation is a full-service security printing, document management, and transaction mail provider in Hong Kong. Its core services include security and commercial printing and services like variable-data print and electronic direct marketing services. Novation is also present in China.

Wolfgang Baier, SingPost’s group chief executive officer, said that the acquisition is in line with the company’s strategy to grow its digital and hybrid mail business locally and in the region.

‘In transforming SingPost, we have identified digital services as one of our five key business pillars. With this acquisition, we will leverage our combined expertise for expansion into document management and digital printing,’ said Dr Baier, adding that Novation will help to expand SingPost’s footprint in Hong Kong.

As at Dec 31, 2010, the net tangible asset value of Novation was HK$94.3 million (about S$15.7 million). SingPost said that Novation is profitable, and that the proposed acquisition will be on a debt-free basis since Novation has not incurred any debt according to its recent consolidated accounts. The acquisition will not have a material impact on SingPost’s earnings.

SingPost has been expanding its digital and hybrid mail business in the region over the years. Just last year, it acquired a 20.82 per cent stake in Efficient, a Malaysian company which has its core business in business process outsourcing.

SingPost’s shares fell 1.5 cents yesterday to close trading at 95.5 cents per share.

SET TO DELIVER ON RAINY DAYS

•Defensiveness amid uncertainty

•Larger deals may be catalysts

•Upgrade to BUY

Increasingly favourable risk-reward ratio.

2012 is likely to present a highly uncertain environment for investors, and we think the 1) defensiveness of SingPost’s business, 2) its consistently decent dividends and 3) the recent stock price correction means the stock’s risk-reward ratio is increasingly favourable for equity investors. The group is also on an acquisition trail to seek further growth opportunities.

Backed by stable operating cash flows.

We like SingPost for its stable operating cash flows given its noncyclical business. Historically, SingPost has weathered economic downturns well, with flat revenues during the Asian financial crisis, a marginal 2% fall during the SARS crisis and a 1.8% growth during the 2008 downturn. The group also has a strong balance sheet and a dominant market position in the local scene. Such factors render it an attractive stock given the expected market volatility in 2012.

Well-perceived deals as catalysts for stock.

The group has been active in acquiring stakes in companies outside of Singapore for both business and geographical diversification, though deal sizes have been relatively small. Looking ahead, we expect to hear more news on the M&A front, especially in logistics and ecommerce. Opportunities can best be found during periods of market uncertainty, and sizeable M&A deals may be catalysts for the stock should SingPost make acquisitions that are well-perceived by the investing community.

Upgrade to BUY.

SingPost has been consistent in its 6.25 S cents/share dividend payout since FY07 and we expect this trend to continue, given its resilient business and stable free cash flows. The stock price has also fallen by about 11% since end Oct last year compared to the STI’s 7.5% drop. Given the current upside potential of 21.9% along with a forecasted dividend yield of 6.7%, we upgrade our rating to BUY with an FCFE-derived fair value estimate of S$1.14 (7.28% cost of equity), which is also backed by the DDM model (2% terminal growth).

Fond memories of POSBank

But DBS-SingPost tie-up won’t yield products of that era

LAST week’s news that DBS Bank will offer basic banking services at the post office has conjured up expectations that it might revive the people’s bank.

Millions of Singaporeans have fond memories of what it was like to do their banking at the Post Office Savings Bank and it had little to do with nostalgia; the sentiment is firmly grounded in dollars and cents.

For instance, many of us had our mortgages with Credit POSB because it was the cheapest in town.

In 1998, the year that the government handed POSBank to DBS on a platter, a POSBank spokeswoman then estimated that the merger would eventually cost its customers about 12 per cent more in monthly instalments, based on the Credit POSB mortgage rate then of 6.75 per cent and DBS Bank’s rate of 8.25 per cent.

Offering cheaper loans did not mean POSBank did not make money.

In fact, it was raking it in. In 1997, the last year before it was swallowed up by DBS, POSBank posted $219 million in group net surplus (read profit) to the government.

Biggest mortgage provider

It was Singapore’s largest bank in several respects.

POSBank was the nation’s biggest mortgage loan provider, it had 150 branches and 672 ATMs and 5.7 million accounts. Not many will remember this, but it was also innovative: POSBank was the second bank to introduce ATMs in 1979, after Chartered Bank.

No wonder that in the subsequent years following the sale to DBS when many branches were closed as part of integration, it was often greeted with uproar.

Fast forward to Jan 3, 2012 and DBS/POSB customers will be able to access basic banking services at all SingPost’s 60 outlets.

The tie-up in Singapore between a postal service provider and a bank will enable DBS/POSB customers to conduct banking transactions at 140 outlets, up substantially from the bank’s 80 branches today, the bank said in a statement last Thursday.

Under the agreement with SingPost, banking services available to DBS/POSB customers at post offices include cash withdrawals and cash deposits of up to $5,000.

In addition, customers can also submit a POSB Everyday Savings Account application form at a SingPost outlet.

DBS corporate banking customers are not left out, they can deposit cash bags at four SingPost outlets.

The tie-up will not be cheap but should cost DBS considerably less compared to opening its own branches.

Neither DBS nor SingPost has revealed the expected cost or revenue to either parties from the landmark agreement.

SingPost earned $22 million from financial services for its 2010/11 financial year. The amount came from selling remittance services, UOB’s HDB home loans, ANZ and Standard Chartered Bank unsecured credit facilities and financial planning provided by Prudential .

DBS is working with SingPost to boost security measures at the post offices which could include having an armed guard and installing a safe to meet regulatory requirements.

Benefits trump costs

But the benefits of extending DBS’s network should far outweigh the costs, especially if later the bank increases the type of products it pushes through the post office such as credit cards and home loans.

SingPost and UOB have an exclusive five-year contract which began in 2009 for selling HDB home loans.

In the meantime, DBS could rake in much cheaper deposits compared to its rivals and make higher margins from selling loans.

In fact, in the parliamentary debate in 1998 on the privatisation of POSBank, former Ayer Rajah MP Tan Cheng Bock noted that while most POSBank depositors live in HDB flats with housing loans from the Housing & Development Board, ‘all the borrowers of Credit POSB are owners of private properties’.

But DBS/POSB customers could be disappointed if they think the new tie-up would lead to POSBank-type products or loans.

A DBS spokeswoman has told BT that there would be no rebranding come Jan 3.

As other banks look on and tote up the advantages that DBS might have on them in this scoop, the latter will have to work hard to fulfil customers’ expectations.