Thursday 9 May 2013

Singapore Post

OCBC on 6 May 2013

Singapore Post (SingPost) reported a 25.0% YoY rise in revenue to S$182.5m but saw a 14.6% drop in net profit to S$26.1m in 4Q13, bringing full year net profit to S$136.5m, accounting for about 94% of our full year estimate. Excluding one-off items, underlying net profit was S$141.0m, which was 2.5% shy of our forecast. As expected, operating expenses continued to rise. Meanwhile, amid a backdrop of changing mail profile mix, SingPost is investing S$45m in upgrading its sorting infrastructure. We like SingPost’s stable operating cash flows and consistent dividends, but see few re-rating catalysts for now. Still, we expect the share price to be supported by investors seeking yield (~4.8% FY13F). Maintain HOLD with S$1.23 fair value estimate.

FY13 results within expectations
Singapore Post (SingPost) reported a 25.0% YoY rise in revenue to S$182.5m but saw a 14.6% drop in net profit to S$26.1m in 4Q13, bringing full year net profit to S$136.5m, accounting for about 94% of our full year estimate. Excluding one-off items such as a S$5.7m write-off of intangible assets, underlying net profit was S$141.0m, which was 2.5% shy of our forecast.

Expenses continue to rise
Labour-related expenses continued to rise with new staff hires and additional headcount from new subsidiaries, while volume-related expenses rose with growth in international volumes and higher conveyance and cost of goods sold. Finally, admin expenses also increased in the last quarter, such that total operating expenses rose 17.2% QoQ. EBITDA margin fell from 31.0% in 4QFY12 and 33.4% in 3QFY13 to 25.8% in 4QFY13 as a result.

Changing profile of mail
Domestic mail volume continued to decline for the sixth consecutive quarter, such that SingPost saw its first-ever annual decline of 2.6% in letter mail volumes in FY13. With the mail volumes expected to trend lower although the number of households in Singapore trends higher, management has decided to invest S$45m in upgrading its sorting infrastructure to handle the changing profile of mail (rapid growth of packages and decline of letters). 

Haven for yield seekers
Out of the S$628.3m in cash and cash equivalents, along with financial assets worth S$16.6m as at Mar 2013, more than S$300m has been used to repay its 10-year bond which matured last month. In line with its usual practice, the group has proposed a final dividend of 2.5 S cents/share, bringing the full year payout to 6.25 S cents. We like SingPost’s stable operating cash flows and consistent dividends, but see few re-rating catalysts for now. Still, we expect the share price to be supported by investors seeking yield (~4.8% FY13F). Maintain HOLD with S$1.23 fair value estimate.

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