Maintenance capex is about 5% of revenue over the past 3-5 years. Management doesn't expect major capex in the next 1-2 years. However, SingPost's mail-sorting system will be more than 15 years old in 2013-14 and hence would require upgrade. Management does not expect it to cost S$100m (the original capex of the existing mail-sorting system) as SingPost's current equipment is well maintained and technology has reduced replacement cost.
During the Asian Financial Crisis (AFC), mail volume dipped by 2%. The current economic downturn started having an impact in 3QFY09 and 4QFY09 (year-end- 31 Mar). 4QFY09's mail revenue dipped by 2.1% yoy, suggesting that the impact of the current economic downturn is similar to that of AFC.
SingPost continues to look into ways to cut costs. 40% of its operating cost is labour (of which, a quarter is due to flexible workforce such as part-time staff). 40% of its remaining operating cost is volume related. Including the flexible portion of labour cost, a large portion of operating cost is flexible and can be scaled back in tandem with mail volume contraction.
The bulk of SingPost's current revenue is generated from local demand. SingPost targets to grow its overseas revenue from 3% currently to 10-15% in 3 years' time by increasing non-regulated mail volume in its overseas network e.g. Singapore is a printing hub for the region and can be a regional distribution centre for publications.
Dividend policy - SingPost is committed to paying a minimum DPS of 5 cts p.a (5.9%). FY09's DPS was 6.25 cts (7.4%) or 80% of FY09's EPS of 7.73 cts.
Consensus EPS forecasts are 7.43 cts and 7.26 cts for FY10 and FY11 respectively. Stock is trading at 11.4x and 11.6x respectively. Net gearing is 0.64x.
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