Singapore Post: Your dividend's in the mail

Results in line with expectations. Singapore Post (SingPost) reported a 2.9% YoY fall in revenue to S$115.6m and a 2.5% rise in net profit to S$35.5m for 4Q09, in line with expectations. For the whole year, revenue rose 1.8% to S$481.1m while net profit was flat at S$149.5m. Mail revenue was lower due to a decline in international mail contribution while logistics revenue was steady against 4Q08. Rental and property-related income improved with higher rental income from the Singapore Post Centre (SPC) as well as additional income from leasing of space at re-purposed post office buildings. This is commendable performance at a time when the country is facing its worst contraction since independence.

Capex needs for machines likely to be gradual. SingPost's mail- processing system cost the group about S$100m in 1997-98 and it may either have to be replaced or upgraded around 2013-14. However, it is also likely that the group undertakes its capex plans gradually instead of incurring a lump sum expenditure in a single year. Management said they have yet to arrive at a decision and have entertained the option of funding capital needs by a combination of internal resources and additional debt if a huge revamp is needed. SingPost's net gearing is at 0.64x (all borrowings are bonds maturing 2013).

Impact of competition not great yet. Despite having new postal service operators coming on stream, the group attributes a large part of the slowdown in earnings growth to the economic downturn rather than new competition. We are optimistic of the group's ability to retain market share given that incumbents (and SingPost being the dominant player) are generally able to fare better than new entrants in a downturn. It is also good to note that most of the group's competitors are also its customers and there is some cooperation among the companies.

Maintain BUY. True to its relatively defensive nature, SingPost is paying out a final dividend of S$0.025 per share, meeting our expectations of a full year payout of S$0.0625 per share. This comes at a time when most companies are cutting or avoiding dividends altogether. We like SingPost for its strong operating cash flows though we note that it is not immune to the downturn and is likely to continue to feel its impact. Maintain BUY with S$0.91 fair value estimate.

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