SingPost ready to enter financial sector

Analysts appear hesitant to rerate Singapore Post Ltd.’s stock, considering the postal company’s plan to roll out financial services starting in June. SingPost, which is 31per cent-owned by Singapore Telecommunications Ltd., also faces long-term uncertainty amid government plans to liberalize the postal sector in 2007. But given a low initial outlay for the new operations and the minimal threat of competition, analysts and fund managers still consider the stock a stable and attractive dividend issue. “It’s a yield stock, it’s always been a yield stock,” DBS Vickers Securities analyst Himanshu Chaturvedi said. The company has committed to pay USD80 million (USD47.7 million) in dividends for each of the 2002-03 and 2003-04 financial years. That is equivalent to paying out 73per cent of earnings for the year ended March 31, 2003, when net profit was USD108.7 million. It is also a higher percentage than the 70per cent of annual earnings that MobileOne Ltd., a comparable dividend stock, has committed to pay. “We like the stock. . . . It’s cash-generative, has good yield, good balance sheet,” said Christopher Wong, a fund manager at Aberdeen Asset Management Asia Ltd. The shares, listed on Morgan Stanley Capital International’s Standard Index since August, received a boost in March with inclusion in the 45-stock Straits Times Index, leading index-fund managers to buy shares. SingPost, whose mail operations draw 80per cent of revenue and date back almost 180 years, will try to add growth momentum by moving into retail financial services. It is unclear whether spending on diversification will affect the dividend policy over the long term. “In determining the dividend levels for the future years, we will consider factors like our expected financial performance, projected levels of capital expenditure and other investment plans, levels of our cash, gearing and return on equity,” a SingPost spokeswoman said. SingPost’s financial services, including the sale of unit trusts and insurance, loans to individuals and small businesses, and pawnbroking at some branches, are a first for a postal company in this part of the world. SingPost, which estimates it holds more than 95per cent market share of domestic mail in Singapore, has a monopoly for basic mail services until March 31, 2007. It is uncertain whether any serious competitor will emerge come deregulation. Singapore’s population of four million makes it a small market for more than one operator, and SingPost’s branch network and history make it a daunting foe. The SingPost spokeswoman said that while the company can’t judge the level of competition it might face, “We believe we are well positioned to address deregulation.”