SingPost Q2 earnings up, helped by one-off items

Revenue up 7.9%, boosted by consolidation of Quantium turnover

SINGAPORE Post (SingPost) chalked up a net profit of $40.5 million for the second quarter ended Sept 30, up 8.3 per cent from the previous corresponding quarter.

The net earnings were higher as a 98.7 per cent fall in share of profit of associated companies and joint ventures to $40,000 from $2.97 million was more than compensated by a $2.93 million amortisation of deferred gain on intellectual property rights and a $2.13 million benefit under the government’s Jobs Credit Scheme. Without the amortisation of deferred gain (which relates to the collaboration with US-based Postea Inc), the government relief scheme and other one-off items, the group’s underlying profit fell 8.6 per cent to $35.4 million.

The three months also saw a boost from a 23.1 per cent rise in rental and property-related income to $10.1 million due to higher rental income from Singapore Post Centre and the leasing of space at re-purposed post office buildings.

Group revenue – which was strengthened by the consolidation of revenue from Quantium Solutions Group (previously known as G3 Worldwide Aspac group of companies) – increased 7.9 per cent to $130.3 million.

Quantium became wholly owned by SingPost in May this year after SingPost acquired the remaining 50 per cent stake in G3 Worldwide Aspac for $15 million.

Earnings per share (EPS) for the quarter came in at 2.104 cents per share, up from 1.943 cents. An interim dividend of 1.25 cents per share will be paid on Nov 30.

Mail revenue decreased 4.4 per cent to $87.6 million, dragged down by lower international mail contributions. Logistics revenue increased 142.6 per cent to $45.6 million, on the back of contributions from Quantium Solutions, which helped to offset lower revenue from Speedpost.

For the fiscal first half year, net profit attributable to equity-holders grew 4 per cent to $79.9 million. Excluding one-off items, underlying net profit declined 6.9 per cent to $72.3 million. Meanwhile, revenue rose 4.3 per cent to $252 million.

Group chief executive officer Wilson Tan said: ‘Although the global economy is showing signs of recovery, the postal industry typically experiences a longer recovery runway. We continue to face unrelenting pressures from the operating environment.’

However, Mr Tan also added that the group will continue to keep an eye on costs as well as pursue new growth opportunities.

SingPost closed at 93.5 cents yesterday, up by one cent.

Logistics revenue boosted topline

• Maintain Neutral; DPS assumptions raised given an improving macro outlook. We have raised our earnings estimates by 3-5% on higher logistics revenue assumptions. 2Q10 earnings of S$40.5m (+8.3%% yoy) are in line with consensus and our estimates, accounting for 27.8% of our full-year estimate. Revenue beat our expectations, growing 7.9% yoy to S$130.3m, thanks to contributions from Quantium Solutions Group (formerly known as G3 Worldwide Aspac Pte Ltd). However, the positive impact was negated by a slightly higher-than-expected tax rate. As expected, 2Q10 dividend was 1.25cts/share. 1H10 earnings account for 54% of our full-year estimate. Our DDM-derived target price rises to S$1.09 (discount rate: 7.4%) from S$0.88 after accounting for our higher DPS assumptions and aligning discount rates with our house rates. Although dividend yields are attractive at 7%, we remain Neutral on the stock given a lack of catalysts.

• Quantium boosted logistics revenue. 2Q10 mail revenue slipped 4.4% yoy on declines in hybrid, philatelic and international mail though domestic revenue rose 0.5% yoy. Logistics revenue growth of 142.1% was attributed to the inclusion of Quantium. Retail revenue grew 2.2% yoy with the help of all segments. Rental and property-related income jumped 23.1% yoy to S$10.1m, thanks to higher rental income from SPC (more than 97% occupancy) and the leasing of space at repurposed post office buildings.

• Outlook. SingPost will continue to focus on direct mail expansion. It will also continue to look out for suitable acquisition opportunities. Starting 1 Jan 2010, Singapore will be reclassified as a New Target Country (from Developing Country) by the Universal Postal Union, which will result in higher net terminal dues payments for international mailing (terminal dues payable by Target Countries are generally steeper). SingPost says the annualised impact is about 5% of underlying net profit. This has been factored into our estimates.

Time to factor in growth possibilities

Bumping up earnings estimates. We have tweaked our earnings estimates to take into account G3 Worldwide Aspac (G3AP)’s contribution to the group’s revenue. We had earlier refrained from doing so given the uncertainty of its impact in the face of a fragile global economy. Although the general mood is still cautious given that government stimulus packages have not resulted in a sustained recovery in consumer spending (amongst other risks present in the global system), we now deem it appropriate to increase our earnings estimates by about 6% to incorporate G3AP’s earnings. Overseas revenue now accounts for 8.2% of total revenue compared to only 0.4% previously.

Recovery underway but not time to party. Composite leading indicators of key OECD countries are continuing their upward trend after reaching their inflexion points around 1Q09. 2Q09 GDP growth cues have also been largely positive, especially for Asian economies. While there are still doubts on fundamental recovery in the financial markets, there is no denying that an improvement in investor sentiment has allowed companies and banks to raise capital and shore up their balance sheets. However, certain risks, such as 1) deteriorating personal credit and loans in the US, 2) possible build-up of asset bubbles in China, and 3) possible weak private sector spending in major economies after government stimulus plans wear off, threaten to destabilise the global economy and hence Singapore’s economy. As SingPost’s earnings are significantly correlated with Singapore’s GDP growth, it is worth noting the possible trajectories of the global economy.

Worldwide postal sector only feeling a pinch. According to a Universal Postal Union survey, postal operators are definitely feeling the effects of the crisis, but are “not showing signs of an economic depression”. Shares of listed postal operators have performed well during this crisis, given their relatively defensive nature. Besides having a decent dividend yield, SingPost is also pursuing growth, as seen by its recent M&A deals, enhancing the attractiveness of the stock.

Maintain BUY. SingPost is still the dominant player in Singapore’s postal industry despite threats from new competitors, and we foresee its strong operating and free cash flows to continue to buttress its reputation as a stable and well-run business. Meanwhile, it is taking the opportunity to grow its regional network during this downturn, which is definitely a positive development. With the incorporation of G3AP’s future earnings, we have also raised our fair value estimate to S$1.09 (prev S$0.97). Maintain BUY.

Strong breakout positive

Likely more upside. SingPost has staged a strong break above the previous 2009 high of $0.94 yesterday on heavy volume and this bodes well for the stock.

Initial resistance at $1.00. Should it be able to hold above this new resistance-turned-support, we expect the stock to try for the resistance at $1.00 (upper boundary of 10-month uptrend channel and key support-turned-resistance level) next; breaking which, we see the subsequent key resistance at $1.05 (minor peaks in Jul and Aug ’08).

RSI in overbought territory. However, with the RSI already showing heavily overbought signals, we would not rule out a nearterm technical correction.

Immediate support at $0.94. Below the immediate support at $0.94, we expect the next support at $0.905 (resistance-turnedsuport level and 50-day MA), ahead of $0.855 (minor troughs in Jul ’09 and lower boundary of 10-month uptrend channel).

SingPost Q1 net profit dips

Total revenue climbs a marginal 0.7% to $121.8m; mail revenue down 7.2%

SINGAPORE Post (SingPost) has posted a marginal 0.1 per cent dip in its fiscal first-quarter net profit to $39.4 million, as the group coped with lower mail revenue and higher operating expenses during the period.

For the three months ended June, mail revenue – which accounted for the lion’s share of its total revenue – fell 7.2 per cent to $85.9 million. Despite increases in its logistics and retail businesses, total revenue climbed only a marginal 0.7 per cent to $121.8 million.

‘The operating environment remains challenging and difficult,’ said SingPost CEO Wilson Tan. ‘The performance of our business segments in the first quarter clearly reflects the continued weak economy and lower demand.’

Total expenses increased 5.5 per cent to $84.7 million, mainly attributed to the consolidation of G3 Worldwide Aspac Pte Ltd (G3AP), a provider of cross-border mail services. Labour and related costs rose 2.5 per cent to $33.6 million, even as the group gained some $2 million from the Jobs Credit Scheme.

SingPost does not have any short-term debt as at end-June. But it owed $301.8 million as a result of a $300 million bond issue that will mature in 2013. The bonds have a fixed interest rate of 3.13 per cent per annum.

Cash and cash equivalents stood at $184.9 million. Earnings per share slipped to 2.045 cents, from 2.051 cents. The group has proposed an interim dividend of 1.25 cents per share. Net asset value fell to 12.67 cents, from 13.30 cents as at end-March.

The group is banking on two recent acquisitions to expand into new markets. It recently bought the remaining 50 per cent that it did not own in G3AP and acquired a 30 per cent stake in US-based postal technology firm Postea.

With G3AP, SingPost will focus on opportunities to expand beyond cross-border mail business and extend its services to the rest of Asia-Pacific. As for Postea, it is looking at joint development and marketing of postal and logistics technologies.

SingPost shares ended up half a cent at 89 cents yesterday.