SingPost’s non-mail business fails to deliver

Against the tide of structural changes in the global mail industry and the drastic decline in public mail volume, SingPost has bucked the trend to grow overall mail revenue by 7.1% YoY in FY Mar10/11 and 1.6% YoY in 1QFY Mar12. Singapore remains its key market, accounting for 88% of group revenue in 1QFY Mar12.

The slide in mail volume in Singapore is milder compared to most other developed markets in the West mainly due to the Republic’s status as a regional trade and financial hub. SingPost’s bulk mail (business‐to‐business and business/government‐to‐consumers) makes up about 85% of mail volume while public mail makes up the remaining 15%.

Bulk mail volume is growing in tandem with the business activities in Singapore. The group has also been making a push in the advertising mail segment to encourage major retailers to use direct mail for tailored advertising. The advertising mail volume has grown by a strong 16% YoY in 1QFY Mar12. Public mail volume is on the decline but at a slower rate of 2% every year.

The non‐mail business that SingPost is trying to grow has not shown tangible results. However, acquisitions of logistics and e‐commerce companies in the region have picked up and earnings accretion from these new investments would be a catalyst for re‐rating. SingPost has spent about S$60m out of the S$200m raised in March 2010 through the issue of fixed‐rate notes for new investments.

The group remains committed to paying out 1.25 cents per share in dividends every quarter and 2.5 cents in the final quarter. This translates to a stable yield of 6.2%. We expect it to generate annual free cash flow of around $170m going forward, well in excess of its dividend commitment. As a signal of confidence, SingPost has made a cumulative market purchase of 23.3m of its own shares
since the approval of the share purchase mandate in June this year.