Singapore Post still a good place to park your funds

Healthy FY14 results
Singapore Post (SingPost) reported a 5.9% YoY rise in revenue to S$193.3m and a 17.7% increase in net profit to S$30.7m in 4QFY14, bringing full year net profit to S$143.1m, a 4.8% rise. Excluding one-offs, underlying net profit grew 2.9% to S$145.0m in FY14, 1.8% higher than our estimate. Full consolidation of new subsidiaries and growth in e-commerce related businesses offset declines in the traditional postal business; excluding contributions from acquisitions, SingPost recorded organic revenue growth of 3.0% in 4QFY14.

Growing surely and steadily
Revenue from the international mail segment increased 27% in FY14, contributed by strong growth in e-commerce package volumes. Though the group’s business transformation will still take time (and perhaps more acquisitions), its initiatives are starting to yield results. Backed by a strong balance sheet and stable operating cash flows from its core mail business, the group is able to
enhance its logistics network and e-commerce capabilities to cater to the growing industry in the Asia Pacific region. In FY14, revenue from overseas accounted for 27.8% of total turnover (vs 19.1% in FY13), of which Logistics (mainly from the regional network of Quantium Solutions and freight forwarding business of Famous Holdings) made up 88.4% and Mail the remaining 11.6%.

Stock price may be supported as long as dividend yield remains decent
We switch our valuation to the free cash flows from equity method (cost of equity: 7%, terminal growth: 2%) to capture growth from the e-commerce business. As such, our fair value rises from S$1.32 to S$1.42. Besides positive growth prospects, SingPost’s stock has also been buoyed by investors seeking to park their funds in an environment awash with liquidity. Given its consistent dividend payout of 6.25 cents per year, we believe that investors may continue to seek refuge in the stock as long as the dividend yield remains decent. Indeed at current price, the forecast dividend yield is decent at 4.4%, and may be attractive to yield seekers. However, given the limited upside potential, maintain HOLD.