Even the US Postal Service, the third largest employer in the USA, has not been immune from the recession, as it has seen sharp hits to mail volume since the slowdown started. The US Postmaster General warned that the recession could slash mail volume by 15% this year from 212b pieces in 2008 to 197b, compared to a decline of less than 5% in 2008. Among cost-cutting steps proposed is a delivery service cutback from six to five days a week.

We had highlighted previously that SingPost will also not be immune to the recession, and estimated that 21% of revenue will be vulnerable, namely international and business mail, incoming Speedpost, non-remittance financial services and retail products. Our forecast already assumes a sequentially weaker 2H09 as SingPost started to feel the recessionary wind in 3Q09.

With 4Q09 likely to soften further, we would not rule out the likelihood that results could be weaker than expected. At the same time, we also understand that budget benefits will start to flow through in 4Q09. To be conservative however, our latest forecast more appropriately captures the sequentially weaker operating conditions but not the budget benefits yet. As for FY10-11, we expect topline to fall at this point but bottomline to improve mainly on operational and budget-related savings.

Nevertheless, SingPost should still be able to maintain its minimum dividend of $0.05 a share. We forecast $170-180m free cashflow annually in FY09-FY11, easily covering capex of $10-15m a year (2-3% of sales) and dividend of $100m. It has already paid $0.0375 a share in 9M09. However, we note that its $300m fixed-rate bond is maturing in 2013. As management may want to conserve more cash to finance this, we have lowered our dividend expectations ahead of this need.

Fair value has been trimmed to $0.92 (from $0.94). However, we still appreciate the relative defensiveness of SingPost’s business model against the likes of US Mail or even other so-called defensive companies such as SingTel. Its diversified revenue streams and innovation in coming up with new revenue streams (eg distribution of UOB HDB loans) should stand it in good stead. Even though lowered, dividend yield is still decent at 6-7%.