Singpost

Singpost: 1Q11 net profit rose just 3% to $40.6m, in line with our house’s expectation. We note that its operating expenses (+19%) outpaced revenue (+13.5%) as labour, traffic and finance costs jumped sharply following the consolidation of Quantium Solutions, the cessation of Jobs Credit aid, the onset of higher international terminal dues and additional interest charges from a $200m FRN issued last year. The usual quarterly dividend of 1.25 cents was announced.

SingPost has recently geared up its balance sheet for M&A via a 10-year $200m fixed rate note. Pending deployment, we understand that 19% of the funds have been parked in ELNs and this could introduce volatility to its P&L in future. On the positive note, the rise in international postal terminal dues may not be as negative as originally expected. Management originally guided for an adverse impact of 5% on net profit but they are now indicating it could be less.

KE maintains HOLD on SingPost with a higher TP of $1.25 (based on 15x FY11 EPS). We believe the share price will continue to be supported by its stable dividend yield of 5.5%.