SinPOst

Singapore Post
Moving into the property transaction business
SingPost and ERA Realty Network of Hersing Corporation have signed an
agreement to offer a new service to customers. Known as PostREALTY, this
one-stop service is a convenient and reliable new channel for customers to buy,
sell and rent public and private residential and commercial properties at post
offices.
This service will initially be offered at three of SingPost’s branches, namely Ang
Mo Kio Central Post Office, Marine Parade Post Office and Toa Payoh Central
Post Office from 16 Oct 06 (SingPost currently has 62 branches). A dedicated
team of service staff from ERA Realty Network will be stationed at these post
offices to assist customers with enquiries and property transactions.
We view this partnership positively, as SingPost has tied up with a leader in
the business. ERA Realty Network currently enjoys leadership position in HDB
resale transactions and private resale market, capturing an estimated 35% of the
market.
More importantly, this partnership reinforces SingPost’s diversification strategy
to leverage its wide retail network to offer more value-added products and
services. We can expect SingPost to announce more of such similar initiatives
in future.
Market concerns are unwarranted. Some market players are concerned that
the impending opening of the low-income unsecured
lending market to commercial banks will mean more competition for SingPost’s
EzyCash. We feel likewise too. However, it should be noted that the retail
segment accounts for only 4.5% of FY06 operating profit, and EzyCash is but
one portion within the retail segment. Hence, we believe the impact on
SingPost’s earnings will not be significant.
The other concern of market players is that the exclusive postal licence will
expire on 31 Mar 07. Our view is that other players are unlikely to enter into a
market which is relatively small, and compete with SingPost which has an
elaborate postal infrastructure setup. Hence, we expect minimal impact on
postal earnings upon expiry of the exclusive licence.
Divestment of non-core assets progressing. Separately, SingPost
announced that it has completed the sale by tender of its HDB shop unit at
Marine Parade Central. The net book value of the property is S$0.83m, and the
sale price is S$5.68m, giving a gain on disposal of S$4.78m.
SingPost remains a BUY. Our DCF valuation gives a fair value of S$1.23 per
share. Based on a dividend payout ratio of 89% (management guided payout
ratio of between 80-90%), we are forecasting FY07 dividend of 6¢, translating
to a dividend yield of 5.9%. This is very attractive when compared against 3-mth of Sibor 3.4%