Singpost

OCBC on 31 Jul 2012

Singapore Post (SingPost) reported a 6.5% YoY rise in revenue to S$151.6m but saw a 2.9% fall in net profit to S$38.1m in 1QFY13. Results were in line with our expectations, with net profit accounting for 26.5% of our full year estimates vs 28.1% of the street’s estimate. SingPost remained in a net cash position of S$161.4m pending the use of funds raised earlier for investment opportunities. Amidst the uncertain environment for investors, we believe that the defensiveness of SingPost’s businesses and its consistently decent dividends translates to a favourable risk-reward ratio for equity investors. In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents per share, which will be paid on 31 Aug 2012. Maintain BUY with S$1.14 fair value estimate.

1QFY13 results in line with our expectations
Singapore Post (SingPost) reported a 6.5% YoY rise in revenue to S$151.6m but saw a 2.9% fall in net profit to S$38.1m in 1QFY13. Results were in line with our expectations, with net profit accounting for 26.5% of our full year estimates vs 28.1% of the street’s estimate (Bloomberg consensus: S$135.6m). Group operating margin fell from 35.4% in 1QFY12 to 32.2% in 1QFY13 with lower margins in the mail division due to higher business costs and changing product mix.

Higher revenue in most divisions
Mail revenue increased 3.7% to S$100.9m as growth in packages and consolidation of Novation Solutions (acquired in May 2012) offset a slight decline in domestic mail. Logistics revenue rose 11.5% to S$57.1m, driven by higher contributions from e-fulfilment activities in Quantium Solutions and Speedpost. Meanwhile, retail revenue also increased, but rental and property-related income fell by 3.1% due to lower rental income.

Strong financial position
Interest coverage (EBITDA/Interest expense) remained strong at 18.1x in Jun 2012. Operating cash flow was also healthy with a net inflow of S$51.3m in the quarter. SingPost remained in a net cash position of S$161.4m pending the use of funds raised earlier for investment opportunities. According to management, the group continues to explore acquisition opportunities to accelerate its transformation (e.g. new revenue contributors in the digital services and e-commerce businesses, and growth in regional logistics and e-fulfilment).

Consistent dividends prized in an uncertain environment
Amidst the uncertain environment for investors, we believe that the defensiveness of SingPost’s businesses and its consistently decent dividends translates to a favourable risk-reward ratio for equity investors. In line with its usual practice, SingPost has declared an interim dividend of 1.25 S cents per share, which will be paid on 31 Aug 2012. Maintain BUY with S$1.14 fair value estimate.