Singpost

OCBC on 25 Aug 2012

The buoyant mood in Singapore’s property sector means that this could be an opportune time for SingPost to spin off some of its assets; it may even receive an offer that is hard to resist. The group has about 61 post offices and we estimate that about 16 or so are potentially saleable. However, the jewel in its book is the Singapore Post Centre (SPC). We estimate that the SPC is worth S$765m based on its current mix of industrial, office and retail use, but the value may increase to about S$1.56b if the building is converted to full commercial use. However, putting market sentiment aside, the group may not be in a rush to unlock value as it is currently cash-rich. Hence we regard a spin-off as a bonus; and investors should focus on more fundamental factors such as the company’s defensive nature and consistent dividends. Maintain BUY with S$1.14 fair value estimate.

Property spinoffs gathering pace, though mainly hospitality
With current high property prices in Singapore, an increasing number of companies have listed their property assets due to favourable valuations, though these have been mostly limited to hospitality assets so far this year.

SingPost is rich
Besides having a dominant presence in Singapore’s mail and logistics business which generates stable cash flows, SingPost also has a property portfolio that may bring in substantial cash when unlocked. The group has about 61 post offices and around half are owned by SingPost; about 14 of these are restricted in usage, leaving 16 or so potentially saleable. However, the jewel in its portfolio is the Singapore Post Centre (SPC) which is conveniently located near Paya Lebar MRT. We estimate that the SPC is worth S$765m based on its current mix of industrial, office and retail use, but the value may increase to about S$1.56b if the building is converted to full commercial use.

May be an opportune time, but no rush for group
The buoyant mood in Singapore’s property sector means that this could be an opportune time for SingPost to spin off some of its assets. The group may even receive an offer that is hard to resist. However, putting market sentiment aside, the group may not be in a rush to unlock value as it is currently cash-rich after issuing perpetual capital securities. The divestment of property would also result in a loss of rental income.

Spin-off a bonus; buy for its defensiveness
On a more fundamental level, we like the group for its stable operating cash flows given its non-cyclical business. Its consistent dividends (yield ~5.9%), strong balance sheet and dominant market position in its home country render it an attractive stock during an uncertain climate. Maintain BUY with our DDM-derived fair value estimate of S$1.14.