Initiate coverage with a HOLD at fair value estimate of S$0.85. From the last traded price of S$0.785, our target price shows an upward potential of 8.09%. On the back of cost pressures, greater competition for its international mail business and the presently weak economic backdrop, we initiate Singapore Post Limited with a HOLD call at a fair value estimate of S$0.85.

Lackluster Q4 results. Singpost announced a set of results that showed that it has not been spared from the current economic downturn. Revenue fell by 2.9% from S$119.05 million in Q4FY2007/2008 to S$115.57 million in Q4FY2008/2009. Stronger 1st half revenue was largely offset by the downturn in the 2nd half of the financial year. Underlying net profit fell by 3.2% for the quarter and net profit for the year fell by 0.3% to S$148.8 million. Operating expenses for the quarter fell by 6.3% due to government relief as well as cost control measures by the Group. The Group proposed a final dividend of 2.5 cents per share, if approved, would lead to a total annual payout of 6.25 cents per share.

Acquisition of G3 Worldwide. SingPost has fully acquired the remaining share capital of G3 Worldwide Aspac Pte Ltd (“G3AP”). It entered into a share swap agreement with TNT International Mail Holdings B.V. (“TNT”) where SingPost will acquire the remaining 50% issued share capital of G3AP in exchange for its 24.5% shareholding in G3 Worldwide Mail N.V. (“G3”) and the payment of EUR7.5 million to TNT. This acquisition allows SingPost to focus its efforts on creating a greater regional footprint in the Asia Pacific region, inline with its focus on regional expansion.

De-regulation of the Postal sector. From 1st April 2007, Singapore’s postal sector was liberalized. The Government decided to open the Basic Mail Services market, which includes the collection and delivery of letters and postcards, within, into and out of Singapore. Ending SingPost’s 15 years monopoly license. With this, new players will be allowed in both domestic and international mail services.

Terminal dues settlement reclassification. At the recently held 24th Universal Postal Union (“UPU”) Congress, it was decided that Singapore will be reclassified as a Target Country (previously known as “Industralised Country”) from the current category of Net Contributor Country for the purpose of terminal dues settlement, with effect from 1 January 2010. Terminal dues refer to settlements for the processing and delivery of international mail between countries. Singapore will have to apply the relevant terminal dues system from year 2010 to 2013 and contribute to the UPU Quality of Service Fund.