Singpost announced core net profit of S$36.6m (flat y-o-y, -2.4% q-o-q) that was c.10% above our forecast, due to higher rental income from a larger lease area following the refurbishment of its post offices. Meanwhile, the impact of the global slowdown was visible in higher provisions and slower topline growth. An interim 1.25 cents DPS was declared, as expected.

Budgetary benefits expected to offset potentially lower rental income. The job-credits and corporate tax reduction would benefit its bottomline by about 3%. But Singpost’s rental income could drop, as one-third of its leases are due for renewal every year.

Impact of slowing economy already captured in our estimates. Singpost was able to maintain flat revenue during the Asian financial crisis in 1997/98, while revenue fell only 2% during the SARS crisis in FY04. We expect a 3% decline in Singpost revenue for FY10F.

Competition not a major concern. Singpost has launched new initiatives in its business mail (22% of total revenue) and international mail (24% of total revenue) segments. These initiatives should mitigate the leakage in Singpost’s revenues, given that its competitors - typically small companies - would be hit harder by the slowdown.

Raised earnings, maintain Buy. We raised our FY09F earnings by 2.5%, but there is no change to our FY10F estimates. Maintain BUY with a revised target price of S$0.88, based on 12x FY10F PER (historical PER range is 15x-18x) as we roll forward our valuation window. The stock offers a minimum annual DPS of 5 cents (6.5% yield) that is payable quarterly.