SGX Yield Stock

6.4% yield amid business transformation

At a Glance

• 3Q12 underlying profit of S$38.9m (-5% y-o-y, +18% q-o-q) exceeded our S$35m estimate due to lower labor costs; interim DPS of 1.25 Scts in line

• One-off write back of S$1.2m and lower bonus provision led to reduction in labor expenses

• Maintain HOLD for healthy 6.4% yield while the underlying business undergoes a transformation

Lower labor expenses in a seasonally strong quarter. Group revenue was up 6% q-o-q on the back of growth in mail and logistics segments. However, operating cost rose at a much slower pace at only 2.5% q-o-q as labor costs of S$44.5m declined 4%. This was due to a one-off write back of S$1.2m due to negotiation with the union and lower provision for staff bonuses. There was also S$1.1m of mark-to-market gains from equity-linked notes, which is excluded from underlying net profit.

Associate income also improved. Share of profit of associated companies amounted to S$1m, compared to a gain of S$0.1m in 2Q12 and loss of S$0.2m in 3Q11. This was due to the inclusion of contribution from recent investments: GD Express Carrier Berhad (GDEX), Efficient E-Solutions Berhad, Shenzhen 4PX Express Co Ltd (4PX) and Indo Trans Logistics Corporation (ITL).

Management wary of cost pressures. The company is in the middle of a multiyear transformation as it is trying to diversify into “digital services” and “e-commerce fulfillment” businesses. Quantium Solutions is the regional platform for expansion of these businesses in Asia. Management does not rule out cost pressures from investments in technology, people and operations.

Maintain HOLD. We raise our FY12F EPS by 2% but FY13F EPS is trimmed slightly. Our TP is trimmed to S$1.04 (cost of equity: 6%) as we assume terminal growth rate of 0% (1% previously).

STEADY DELIVERY IN 3QFY12

•Results in line with our expectations

•Room for more share buyback and gearing

•Declares 1.25 S cents interim dividend

3QFY12 results in line with our expectations.

Singapore Post (SingPost) reported a 0.6% YoY rise in revenue to S$149.4m but a 5.2% fall in net profit to S$41.6m in 3QFY12. 9MFY12 revenue and net profit were in line with our expectations, accounting for 75.6% and 74.6% of our full-year estimates, respectively. However, 9MFY12 net profit made up 81.0% of the street’s estimate (Bloomberg consensus: S$137.5m). On a segmental breakdown, the logistics and retail divisions posted improved revenues in 3QFY12, while mail saw lower contributions due to a decline in domestic and international mail volume.

Comfortable with net gearing of 2x.

The group’s net gearing has increased from 0.5x as at 31 Mar 2011 to 0.75x as at 31 Dec 2011, but there is still room for further increase as management mentioned that it is comfortable with a level of 2x. The reason behind the higher leverage ratio is not because of higher borrowings, but due to cash deployed for investment purposes (more investments in associates and JVs) and share buybacks (hence more treasury shares and lower equity).

Room for another ~8% in share buyback mandate.

According to its share purchase mandate, SingPost may purchase no more than 10% of its issued shares. The group has bought back about 1.78% of its issued share capital (based on 22 Sep 2011 announcement) and has room for about ~8% more. The price paid per share for its last buyback was S$1.04, which is higher than the current stock price.

Maintain BUY.

In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents per share that is payable on 29 Feb. The stock price has risen by about 4.8% since we upgraded it from Hold on 5 Jan, but we still see an upside potential of 16.3% (not inclusive of a forecasted dividend yield of 6.4%) based on our fair value estimate of S$1.14. Maintain BUY.

STEADY DELIVERY IN 3QFY12

•Results in line with our expectations

•Room for more share buyback and gearing

•Declares 1.25 S cents interim dividend

3QFY12 results in line with our expectations.

Singapore Post (SingPost) reported a 0.6% YoY rise in revenue to S$149.4m but a 5.2% fall in net profit to S$41.6m in 3QFY12. 9MFY12 revenue and net profit were in line with our expectations, accounting for 75.6% and 74.6% of our full-year estimates, respectively. However, 9MFY12 net profit made up 81.0% of the street’s estimate (Bloomberg consensus: S$137.5m). On a segmental breakdown, the logistics and retail divisions posted improved revenues in 3QFY12, while mail saw lower contributions due to a decline in domestic and international mail volume.

Comfortable with net gearing of 2x.

The group’s net gearing has increased from 0.5x as at 31 Mar 2011 to 0.75x as at 31 Dec 2011, but there is still room for further increase as management mentioned that it is comfortable with a level of 2x. The reason behind the higher leverage ratio is not because of higher borrowings, but due to cash deployed for investment purposes (more investments in associates and JVs) and share buybacks (hence more treasury shares and lower equity).

Room for another ~8% in share buyback mandate.

According to its share purchase mandate, SingPost may purchase no more than 10% of its issued shares. The group has bought back about 1.78% of its issued share capital (based on 22 Sep 2011 announcement) and has room for about ~8% more. The price paid per share for its last buyback was S$1.04, which is higher than the current stock price.

Maintain BUY.

In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents per share that is payable on 29 Feb. The stock price has risen by about 4.8% since we upgraded it from Hold on 5 Jan, but we still see an upside potential of 16.3% (not inclusive of a forecasted dividend yield of 6.4%) based on our fair value estimate of S$1.14. Maintain BUY.

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.