Core earnings in line. 2QFY08 core earnings of S$35.5m (+9.6% yoy) was in-line with consensus and our estimates. 1HFY08 core earnings formed 50% of our full year FY08 estimates. Reported S$39.7m earnings benefited from S$5.2m of exceptional gains from the sale of property at Clementi Central. This was another solid set of results with 8.8%yoy revenue growth with steady margins. As expected, quarterly DPS of 1.25 cts was also announced.
Revenue up 8.8% yoy. Logistics led growth at 11.5%yoy as a result of increased contributions from Speedpost and warehousing, fulfilment & distribution. Mail and Retail grew by 8.5%yoy and 9.0%yoy respectively. Mail revenue growth was driven by higher mail volumes and price adjustments. Retail revenue growth was driven by financial services (+29%yoy) and vPost on-line shopping transactions but these gains were dampened by decline in agency/bill presentment services.
Operating margin steady yoy at 37.4%. Slight operating margin improvements at Mail and Retail operations helped offset margin decline (-130bps yoy to 14.2%) at Logistics which faced increased competition and volume-related cost pressure.
New CEO likely to give SingPost greater regional focus. The new CEO, Mr. Wilson Tan joined SingPost just two weeks ago and did not indicate any change in SingPost?s strategic direction. Mr. Tan comes with a strong IT background and regional experience. We believe that Mr. Tan?s arrival will step up the regional agenda in SingPost?s current growth strategy. SingPost has been extending its regional reach with initiatives to grow the hybrid mail and vPOST businesses in the regional markets due to limited domestic growth prospects. Key initiatives implemented during 1HFY08 include hybrid mail expansion into HK and Thailand (in addition to Philippines and Malaysia) as well as continued vPOST regional rollout into Australia and India (in addition to Malaysia and Thailand).
Maintain Outperform and target price of S$1.41. Our target price is based on DDM (cost of equity: 6.5%, terminal growth: 1.5%). FY08 earnings estimate is raised by 3% to reflect gains in property sales. SingPost offers reliable earnings delivery and forward yields of 5.5-6.0% for the next three years. We see scope for dividends to surprise on upside given current net gearing of 1.2x vs. target of 2.0x.
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