Results slightly better than expected. SingPost 9MFY3/13 results were better than expected. 9MFY3/13 revenue increased by 14.5% yoy to SGD476.3m and net profit excluding one-off items was slightly up by 0.5% to SGD109.1m. However due to rich valuation, we maintain our HOLD rating but slightly upgrade our target price to SGD1.21.

Top line grew strongly. We appreciate Singapore Post’s transformation effort as we saw positive revenue growth momentum in recent quarters. In 9M FY3/13, SingPost recognized revenue growth in all business segments despite the continuous decline in letter volumes. The growth was mainly driven by consolidation of new acquired subsidiary Novation Solutions as well as e-commerce volumes.

Cost pressure prevented bottom growth. Despite respectable top line growth, net profit hardly made any growth (up by only 0.5% yoy) in 9MFY3/13 compared with a year ago. We expect further improvement in revenue following recently announced M&As. However inflationary cost pressure, gradual shift to lower-margin Logistics business and the cost for transformation will continue to weigh on margins and prevent significant net profit growth.

Still early to judge recent M&As. SingPost announced a few M&A deals recently including SGD60m for 62.5% stake in Famous Holdings, a sea freight consolidator and freight forwarder as well as SGD37m for 100% in General Storage, a self-storage provider in Singapore. We understand that those new subsidiaries are currently profitable and acquisition costs were also reasonable. But since those new acquisitions are bigger than previous M&As, in our view much more effort must be put in to fully merge the new subsidiaries with existing business to create real synergy.

HOLD for rich valuation. SingPost’s current dividends yield of 5.2% is not very attractive relative to its historical average of 6.0%. On PER basis, current 17.2x PER is also approaching historical high. We slightly upgrade our earnings forecast to reflect better-than-expected results and recent acquisitions but maintain our HOLD rating.

Source: Maybank Kim Eng Research - 28 Jan 2013