Sunday, April 29, 2007

Report on SingPost

Report on SingPost

Compiled on 29-Apr-2007 and I am vested in this company.

About the company:

SingPost is Singapore’s leading provider of domestic and international postal services in Singapore. It offer one-stop logistics business solutions and through our extensive retail distribution network in Singapore, a comprehensive range of postal, agency and financial services.

1. Risks and counter actions

(a) Since the domestic postal delivery market has been liberalized on Mar-07, there has not been a credible competitor "appearing" for the domestic mail delivery. I highly suspect that the setup costs and the potential benefits of a duopoly may not be that attractive afterall. Nevertheless, the organization is continuing to enhance its mail processing capabilities to make it ever more efficient.

(b) In this E-era, I wonder if it's business value be sidelined for the next generations. In my opinion, its direct and indirect competitors include email, video conference, VoIP, wireless hotspots and e-payment for bills. Of course, the list goes on. It seems scary at first. Upon further reading of its annual report, it somehow seems to be re-making itself to be relevant. It began to offer direct mails and more importantly collaborated with international publishers (think Harry Potter) and eCommerence merchants (someone got to deliver the physical goods, ya?).

(c) Price - This is fairly subjective. 52 week range is 0.975 - 1.22. 5 years range is 0.63 - 1.27. The 200 days moving average is 1.098. With my purchase price at $1.17, it would cost about $2.24bil to purchase the whole business. For that price, the revenue (05/06) is $0.41 bil, with net profit (05/06) at $0.12bil - about 5.3%. Of course, that is 5.3% profit and an on-going business that may or may not become more profitable...

(d) Lack of established niches - Over last few years, it tried to explore and gain more lines of profit generators. So far, its efforts in finance & insurance distribution seems to be paying off. Going forward, it must keep on exploring what to offer to its customers... if it keep on doing the right stuff, I think it will learn to skillset to do it... but it is too early to tell now.

2. Ongoing Quality of Business

(a) It is a simple business - mail, retail, logistics. Not really that tough to understand from the annual report. Nothing fanciful...

(b) It still has got its monopoly (in domestic mail delivery) so far, until a new-comer appears, which may or may not happen. With the temporary monopoly, it has got pricing power that it has not yet fully exploit.

(c) Scale - Good scale with Volume, Reputation and with Reach (62 branches all over Singapore).

(d) Earning power - For the last 5 years, the results has been good. On the average, profit margin is 28.48%, ROIC is 19.9%, ROE is 31.86%. For the past 5 years it has been profitable and dividends had been duly paid to shareholders. The EPS growth over 5 years is 3.9%, net assets growth is 1.6%. The 05/06 EPS is $0.0646. The business has been generating great positive cash flow over last 5 years and it should not run into cashflow problem at time soon.

3. Management

(a) The board directors and senior management are suspected to be of highly competent people. Combined, the team has got directorship experience from various industries such as tele-communications, banking, fast moving consumer goods, invesment and there is even a MP amongst the team.

(b) Having such a good team may also means that huge salaries are required to retain their services. Based on 05/06 report, there is 1 personnel earning between 500k - 750k, 6 personnel earning between 250k - 500k and 9 personnel earning below 250k. Combined, it is less than 5% of the net profit, fairly reasonable in my opinion.

Why I bought the shares:

1. It is fairly simple to understand its businesses.

2. I expect the business to be 'safely' profitable for the next 10 - 20 years.

3. There might be a potential upside of more than its historical gains of 5%, if the current management developed skills of creating more profit generators, with its ready reach of customer base.

4. The management seems like a competent and honest lot - so far.

5. I highly suspect it will continue to pay dividends as long as it cant find a good way of allocation surplus capital, which is both good and bad. Good as in the management is honest to be giving back the surplus, rather than wasting it on non-profit generating projects. Bad, as in it will attract tax...

6. At the price I purchase ($1.17), its risk-returns is acceptable to me. This means that I prepared to accept the associated risks (of the business and / or profits going bad) for the projected return of 5%, with an on-going business which may or may not become more profitable.

Information sources

  1. Company website at http://www.singpost.com/
  2. Evaluation concepts adopted from Poor Charlie's Almanack

Disclaimer: Completeness, accuracy and opinions based on information and comments mentioned via this website cannot be guaranteed. Investors should always conduct their own research before making investment decisions.

3 comments:

Bill Chen said...

Hi Fu Chin, I chanced about your site while surfing the vr zone forum. Like you, I am into value investing. What you have said is pretty investing.

Bill Chen

Fu Chin said...

Dear Bill,

Thanks for the comments.

Could you kindly elaborate, what do you mean by "pretty investing"?

Thanks.

Warm regards,
Fu CHin

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