Monday, November 4, 2013

Singapore Post: Still delivering on rainy days (OCBC)

Singapore Post:
Fair value S$1.32
add: 12m dividend forecast S$0.06
versus: Current price S$1.30

Still delivering on rainy days
• No surprises in results
• Low margins in tough environment
• Still a haven for yield seekers

Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of our full year estimates.
Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations. We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As. However, margins are expected to remain pressured in the medium term. As expected, the group has proposed an interim quarterly dividend of 1.25 S cents/share. Despite a challenging business environment, SingPost is still delivering a good ROE of about 43%. We also like its consistent dividends which are backed by stable operating cash flows, but see few re-rating catalysts for now. Maintain HOLD with S$1.32 fair value estimate.

2QFY14 results in line
Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of our full year estimates. Excluding contributions from acquisitions, the group saw a 9.6% rise in revenue, on the back of growth in e-commerce related activities. Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations.

Topline growth but even higher expenses
Labour-related, volume-related and admin expenses continued to rise on both a YoY and QoQ basis, mainly due to the change in the group’s business model to a more diversified one, as well as growth in the lower-margin businesses. EBITDA margin was lower at 26.6% in 2QFY14 compared to 31.1% in 2QFY13 and 28.5% in 1QFY14. Due to changing mail profile, high service expectations, keen competition and rising operating costs, the postal industry remains challenging. Meanwhile, cashflow generation remained strong, with net operating cashflow amounting to S$59.7m in the quarter vs. S$48.5m in 2QFY13.

Margins to be pressured in the medium term
We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As. However, at the same time, the group is also experiencing the impact of developmental spending and investments. This is in addition to a rising cost environment and the fact that logistics, one of the key areas in which SingPost is growing, has a relatively lower margin compared to its mail business.

Haven for yield seekers
In line with its usual practice, the group has proposed an interim quarterly dividend of 1.25 S cents/share. Despite a challenging business environment, SingPost is still delivering a good ROE of about 43%. We also like its consistent dividends which are backed by stable operating cash flows, but see few re-rating catalysts for now. Meanwhile, the share price is likely to remain supported by investors seeking yield (~4.8% FY14F). Maintain HOLD with S$1.32 fair value estimate.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 31/10/13

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