Singapore Post

DBS Group Research, May 19

FY14 underlying profit of S$145 million (+3 per cent y-o-y) and final DPS (dividend per share) of 2.5 Sing cents (flat y-o-y) were in line with our estimates

E-commerce contributed 26 per cent of group revenue; overseas revenue accounted for ~28 per cent of group revenue versus 19 per cent last year.

"Buy" with higher DCF-based (discounted cash flow) (weighted average cost of capital 6 per cent, terminal growth one per cent) TP of S$1.60, as we roll over to FY15 forecast and raise terminal growth rate from 0 to one per cent.

FY14 revenue came at S$823 million (+25 per cent y-o-y) from acquisitions and higher e-commerce activities. Excluding acquisitions, revenue grew 7.7 per cent. SingPost disclosed for the first time that e-commerce and its related activities contributed 26 per cent of group revenue.

About 61 per cent of e-commerce business is derived from the mail segment, in the form of higher international mail packages, 31 per cent from logistics and 8 per cent from retail & e-commerce segment. Operating profit of S$179 million was up 2.5 per cent.

On track to grow its non-postal business in both domestic and regional markets. SingPost has signed on well-known brands and 600 customers for e-commerce logistics so far. The group has put all the pieces together - transportation, warehouse, last mile delivery and online presence. Besides, SingPost is not ignoring its postal business and is committed to spending S$100 million of capex over the next three years, to improve postal infrastructure and service quality.

Our revised TP implies 12 per cent upside potential and 4.1 per cent yield.

SingPost is still incurring developmental costs of about S$15 million each year, which may continue for two more years. Therefore, we expect only mid-single digit earnings growth in FY15 forecast. The group has net cash of S$170 million, which can be used for more acquisitions to boost growth.

The company is positioned to ride on the e-commerce growth in Asia and is pursuing a LCC (Low-Cost-Carrier) strategy rather than speed, to compete with the likes of DHL and FedEx.

Therefore, we apply terminal growth of one per cent versus 0 per cent earlier and roll over our valuation to FY15 forecast, resulting in a higher TP of S$1.60.

BUY