Restructuring of Spring joint venture. Pursuant to its Spring JV with TNT and Royal mail in 2001, G3 Worldwide and G3AP were established for worldwide and Asia Pacific cross-border business respectively. Both G3 worldwide and G3AP were associate companies of Singpost and contributed to its bottom line. Singpost’s net profit contribution from G3AP and G3 Worldwide in 9MFY09 was S$3.7m and s$1.0m respectively. Singpost has disposed off its G3 Worldwide stake to focus on G3AP business. Overall, by paying only S$15m cash, Singpost would be able to increase its annual net profit by about S$4m, which is fairly impressive in our view.

Singpost wants to focus on Asia Pac. With 100% stake in G3AP Singpost would have full control over the associate and can further leverage its cross border mail platform in Asia Pacific. Management informed us that G3AP is the only company with presence in 10 Asia Pac countries. On the flip side, we cannot rule out the risk of previous partners TNT and Royal Mail abandoning the use of G3AP, adversely impacting its business. We have not assumed this scenario in our model, as we believe that Singpost would be able to get more business for G3AP from other postal operators also.

Maintain HOLD with target price of S$0.82. We believe, Singpost would limit its payout around 5 cents annually due to (i) huge capex of S$100-150m to upgrade or replace its processing machine in 2013-14, and (ii) refinance its s$300m corporate bonds maturing in 2013. Our target price of S$0.82 is based on 6% target yield inline with average historical yield.