Singapore Post

Kim Eng on 18 June 2012

All the right moves, reiterate BUY. As its restructuring continues, we believe that SingPost is making all the right moves to fend off the negative impact from the sustained decline in global physical mail volume. Our visit to the company last week reaffirmed our view that investors stand to benefit in the long term from its transformation while being protected in the short-to-medium term by its stable dividend payout. We reiterate our BUY call with a target price of SGD1.10 based on 5.7% yield, the average of the top 15 dividend yield stocks in the Maybank Kim Eng coverage universe.

Five pillars, over 20 initiatives. In the face of dwindling global mail volume, newly-minted CEO Dr Wolfgang Baier has introduced the “five pillars” concept, which encompasses over 20 initiatives, in his bid to move SingPost to a new business model. At the core of the strategy is diversification both geographically and product-wise. In our view, the parcel business has a better chance of taking off first, as the investments in Quantium and vPOST are starting to pay off.

Large-scale acquisitions this year or next to surprise the market. SingPost currently sits on a cash balance of SGD617m after the issue of perpetual securities worth SGD350m in Mar 2012. The market has been slightly disappointed that its acquisitions since 2009 have all been small in scale. But it is possible that SingPost would spring a surprise this year – or next – with some large-scale acquisitions.

More cost efficient than peers. While cost pressure will persist in the next few years, we believe that SingPost is one of the most cost-efficient postal organisations among its peers, thanks to its investments in automation and geographical divestment.

Sufficient cash flow to support dividend payout. SingPost has committed to a minimum dividend payout of SGD5cents per share pa. However, based on its operating cash flow generation and recent fund-raising, we believe that it is well able to maintain its track record of SGD6.25cents per share.