2 reasons why Singapore Post is still a worthy stock pick

Consistent dividends and stable cash flows.

Amid what OCBC Investment Research sees as a volatile and low interest rate environment, investors would do well to hold on to Singapore Post stock for its ability to deliver dividends as enabled by its healthy operating cash flows.

Here's more from OCBC:

Continues to deliver steady results. Singapore Post (SingPost) reported a 32.8% YoY rise in revenue to S$201.3m but saw a 2.0% decrease in net profit to S$37.3m in 1QFY14, such that the latter accounted for 25.3% of our full year estimates. Excluding one-off items, underlying net profit fell slightly by 0.9% to S$36.2m in the quarter, in line with our expectations.

Margins normalise; cashflow remains strong. Labour-related expenses and volume-related expenses continued to rise, mainly due to the change in the group’s business model to a more diversified one, as well as growth in the lower margin businesses. EBITDA margin was 28.5% in 1QFY14 compared to 35.0% in 1QFY13. Meanwhile, cashflow generation remained strong, with net operating cashflow amounting to S$58.2m in the quarter vs. S$51.3m in 1QFY13.

About half of S$100m earmarked for investments spent so far. As mentioned in our earlier report, SingPost will be investing S$100m in increasing its efficiency and service over the next three years, and management has now provided a breakdown – S$60m will be in postal infrastructure and network (about S$45m spent on better sorting machines), S$30m in service quality, while the remaining S$10m in people (e.g. SingPost inclusivity fund).

Maintain HOLD; will be supported by yield In line with its usual practice, the group has proposed an interim quarterly dividend of 1.25 S cents/share. SingPost is a good stock to hold in the current volatile environment, as its consistent dividends are backed by stable operating cash flows. We look forward to the group’s transformation as it seeks more growth opportunities, but till then, we see limited upside potential unless earnings growth from its acquisitions proves to be better than expected. Still, we expect the share price to be supported by investors seeking yield in this low interest rate environment (~4.8% FY14F). Maintain HOLD with S$1.32 fair value estimate.

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