Still stable

• In line. 4Q09 earnings of S$35.3m (+2.5% yoy) are in line with consensus and our estimates, accounting for 24% of our full-year estimate. Revenue fell 2.9% yoy to S$115.6m. 4Q09 dividend of 2.5cts/share beat our forecast of 1.8cts/share. FY09 earnings dipped 0.3% yoy to S$148.8m on the back of revenue growth of 1.8% yoy to S$481.1m. Full-year dividend was 6.25cts/share.

• Weaker revenue because of business mail. As expected, revenue growth in 4Q was weak due to the poor economic environment. Mail revenue declined 2.1% yoy on lower international mail contributions while logistics revenue was flat. Retail revenue slipped 7.7% on lower product sales. Operating expenses fell, thanks to lower labour-related expenses as there were benefits from the Jobs Credit Scheme, and lower volume-related expenses, in line with the decline in business.

• Outlook. Management continues to guide for a challenging environment and will continue to give priority to cost management. In view of the downturn, the group is unlikely to sell Singapore Post Centre in the near future.

• Maintain Neutral; unchanged DDM-derived target price (discount rate: 8.5%) of S$0.80. Our earnings estimates are intact. Although dividend yields are attractive at 7%, we remain Neutral on the stock given limited share-price upside. We also introduce FY12 forecasts. Key risks to our rating include a change in its dividend policy and higher-than expected costs.

Raising stake in G3AP a positive step

• Increased stake in associate G3 Aspac (G3AP) from 50% to 100% by (i) disposing off its 24.5% stake in another associate G3 Worldwide, and (ii) paying S$15m cash.
• This transaction would raise Singpost’s FY10 and FY11 net profit by 3% each.
• Maintain HOLD and target price of S$0.82 based on 6% target yield.

Restructuring of Spring joint venture. Pursuant to its Spring JV with TNT and Royal mail in 2001, G3 Worldwide and G3AP were established for worldwide and Asia Pacific cross-border business respectively. Both G3 worldwide and G3AP were associate companies of Singpost and contributed to its bottom line. Singpost’s net profit contribution from G3AP and G3 Worldwide in 9MFY09 was S$3.7m and s$1.0m respectively. Singpost has disposed off its G3 Worldwide stake to focus on G3AP business. Overall, by paying only S$15m cash, Singpost would be able to increase its annual net profit by about S$4m, which is fairly impressive in our view.

Singpost wants to focus on Asia Pac. With 100% stake in G3AP Singpost would have full control over the associate and can further leverage its cross border mail platform in Asia Pacific. Management informed us that G3AP is the only company with presence in 10 Asia Pac countries. On the flip side, we cannot rule out the risk of previous partners TNT and Royal Mail abandoning the use of G3AP, adversely impacting its business. We have not assumed this scenario in our model, as we believe that Singpost would be able to get more business for G3AP from other postal operators also.

Maintain HOLD with target price of S$0.82. We believe, Singpost would limit its payout around 5 cents annually due to (i) huge capex of S$100-150m to upgrade or replace its processing machine in 2013-14, and (ii) refinance its s$300m corporate bonds maturing in 2013. Our target price of S$0.82 is based on 6% target yield inline with average historical yield.

No catalyst for stock price

• Not entirely immune to recession. Historically SingPost has been delivering fairly stable earnings thanks to its position as the dominant postal service company in Singapore. However management has cautioned that its business has been affected by declining business activities. Segments which are likely to be adversely affected are the business mail and Speedpost. SingPost is hoping to draw more costconscious customers to use direct mail as a form of advertising, to offset the decrease in other mail revenues.

• Decent dividend yield and no short term need for refinancing. SingPost maintains its dividend policy of a minimum payout of 5 cents/share yearly. We have cut our dividend per share assumptions from 6.0 cents/share to 5.5 cents/share, in view of the deteriorating business environment, resulting in a still attractive 7% yield. The group has S$300m worth of unsecured bonds due in 2013 with fixed interest rate of 3.13% per annum.

• Maintain Neutral; lowered DDM-derived target price to S$0.80 from S$0.88. We have fine-tuned our earnings estimates by 1-2% for FY09-11 to account for lower revenue. Although the dividend yield is attractive, we maintain Neutral due to the lack of catalysts. Re-rating catalysts could include regional growth opportunities and a bigger share of the express mail market.

In the post – UOB’s foray into heartland home loans

Bank ties up with SingPost to sell HDB loans and challenge rivals on their turf

In a surprise move, United Overseas Bank (UOB) has tied-up exclusively with SingPost to sell HDB home loans, muscling its way into mass market mortgages that have so far been dominated by rivals DBS Group Holdings and OCBC Bank.

UOB which has previously targeted private property buyers and the affluent yesterday said it has forged a strategic alliance with SingPost to distribute UOB HDB Home Loans.

The bank will initially start with four SingPost outlets and plan to have up to 24 post office branches by the end of the year to sell HDB homes loans. SingPost has 52 branches all over the island.

‘The latest move extends UOB’s HDB home loans’ distribution network beyond its 57 branches,’ UOB and SingPost said in a joint statement.

The exclusive arrangement is for more than 5 years, said Claudia Lim, SingPost corporate communications manager.

SingPost dedicated staff trained by UOB will be selling the HDB home loans, said Ms Lim.

Eddie Khoo, UOB’s executive vice-president for personal financial services, said the latest initiative ‘is really about bringing convenience to customers by extending the bank’s distribution network beyond the walls of our own branches to reach customers’.

‘At the macro level, and in the longer term, we see this as a strategic investment as this additional channel enables us to serve our customers better through convenience and accessibility.’

The surprise move will likely spark off a fierce tussle with rivals DBS and OCBC who may seek to protect their turf. Both banks claim to be the market leader. DBS said it has captured HDB buyers through its POSB customers while OCBC has focused on HDB mortgages from the time the government liberalised the market in Jan 2003.

‘POSB is the market leader in HDB home loans,’ said a DBS spokeswoman. The bank has 53 POSB branches.

‘We were also the first in the market to introduce POSB Home Ideal First for first-time homeowners, offering them a 7-day return policy which allows them to assess if the home loan is suitable for their needs,’ she said.

Gregory Chan, OCBC head of secured lending, said the bank’s team of mobile home loan specialists visit potential customers who are too busy to come to its branches, to explain details of home loan packages and to process applications.

‘At the same time, we work with property agents from the largest property firms in Singapore who are in direct contact with home buyers and help market our home loans. This business model has served us well and we continue to be the top player in the HDB home loan market,’ said Mr Chan.

Mass market home loans are just about the safest products as Singapore enters its worst recession ever because the prices of HDB homes did not surge wildly during the property bubble. And now, they are not skidding sharply.

In contrast, the prices of some high-end properties have crashed as much as 50 per cent from the peak reached last year. A Citigroup report in January said that, in the high-end segment, properties have seen price corrections of about 35 per cent from a year ago and they could fall by another 30-40 per cent this year.

David Conner, OCBC chief executive, said last month while announcing the bank’s 2008 results that negative equity for its property portfolio was low because of the bank’s focus on HDB home loans.

He also noted that HDB mortgages are for owner occupation and the loan quantums are small.

‘A big part of our portfolio is HDB – prices have not gone up as much – and we do not anticipate a big fall,’ he said.

OCBC’s home loan book negative equity was 0.7 per cent while 81 per cent of homes for which it has made loans are owner-occupied.