Singapore Post - OCBC Research 2016-02-05: Focus is now on integration

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SINGPOST SINGAPORE POST LIMITED S08.SI 

Singapore Post: Focus is now on integration 

 In line results 

 Net debt in 3QFY16 

 Now below Alibaba entry price 

Healthy 3QFY16 results 

• Singapore Post (SingPost) reported a 32.0% YoY rise in revenue to S$316.2m and a 0.6% increase in net profit to S$43.5m in 3QFY16, such that net profit for 9MFY16 accounted for 79% of our full year estimate, within our expectations. 
• There were no significant one-off items in the quarter; underlying net profit rose 0.7% to S$43.9m in 3QFY16. 

Enters into net debt position 

• SingPost went into a net debt position of S$176m in 3QFY16 (net gearing 12%), compared to being net cash in 2QFY16, as the group financed the acquisition of TradeGlobal. With this, the group has finished all strategic acquisitions, and is not doing due diligence on any more companies at the moment. 
• Going forward, the focus will be on integrating the various businesses. 
• Meanwhile, we estimate that SingPost still has committed capex of about S$250m to be incurred by mid 2017. 

Waiting for investigation results and new CEO 

• The news of Dr. Baier’s resignation and more importantly, questions on the group’s corporate governance, have badly hit SingPost’s stock price, and understandably so. 
• Taking a dispassionate look at the whole event, however, we note that SingPost’s core businesses should continue to churn out stable cash flows as it remains Singapore’s dominant postal operator. 
• Meanwhile, the market is waiting for results of the Special Audit, which will be undertaken by PwC. 
• In our view, it is also quite likely that a new CEO would only join the firm after there is more clarity from the Special Audit. 

HOLD for decent dividend yield of 5.2% 

• With the more volatile general market, we use a higher cost of equity of 7.2%, and with a lower terminal growth rate of 2%, our fair value estimate drops to S$1.37. 
• Given the limited upside potential, we downgrade our rating to HOLD. 
• Meanwhile, we note that SingPost’s share price has fallen below the initial entry price of S$1.42/share by Alibaba in May 2014. 
• Also, at current prices, the expected dividend yield of the stock is about 5.2%, which is decent in our view. 

Carmen Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-02-05

OCBC Securities SGX Stock Analyst Report HOLD Downgrade BUY 1.37 Down 2.19