Singapore Post

Kim Eng on 31 Oct 2012

 Decent results as expected. Singapore Post announced its 2QFY3/13 results yesterday morning. The results were in line with consensus and our estimates. 1HFY3/13 revenue increased by 7.8% yoy to SGD305m, representing 50.6% of our full-year forecast and net profit excluding one-off items was slightly down by 0.6% to SGD69m. We maintain our HOLD rating and target price of SGD1.10 unchanged as we think the upside is very limited after recent strong share price performance.

Transformation only improves the top line. We appreciate Singapore Post’s transformation effort as we saw positive revenue growth momentum in recent quarters. In the first half of FY3/13, SingPost recognized revenue growth in all business segments (Mail sector up 8.0% yoy; Logistics sector up 7.8% yoy and Retail sector up 8.7% yoy) despite the continuous decline in letter volumes. The growth was mainly driven by consolidation of new acquired subsidiary Novation Solutions as well as the revenue growth in Quantium Solutions and Speedpost.  

Still too early to see significant bottom line improvement. Despite respectable top line growth, net profit failed to make any growth (down by 0.6% yoy) in 1HFY3/13 compared with a year ago. In our view, we are not likely to see significant bottom line growth in short to medium term because of inflationary cost pressure and gradual shift to lower- margin Logistics business. 

Property assets divestment? SingPost’s post offices island-wide are precious assets to shareholders. Although the management is open to listening to any offer, we don’t think it will sell their property assets given SingPost’s big net cash position unless the price is too good to say no. However we will appreciate such divestment practice to unlock the hidden value to shareholders. 

Wait for a better entry point. SingPost is more of a yield play. However its current dividends yield of 5.4% is no longer attractive relative to its historical average of 6.0%. We recommend that investors take profit and wait for a better entry point.