Singapore Post - DBS Research 2017-05-15: Challenging E-commerce And Logistics Outlook

Singapore Post - DBS Vickers 2017-05-15: Challenging E-commerce And Logistics Outlook SINGAPORE POST LIMITED S08.SI

Singapore Post - Challenging E-commerce And Logistics Outlook

  • Underlying net profit declined 25% y-o-y and 33% q-o-q in 4QFY17, on top of huge impairments.
  • E-commerce and logistics outlook remain challenging.
  • E-commerce logistics hub and SPC mall are main growth drivers in FY18F/19F.



Challenging e-commerce and logistics outlook. 

  • Singapore Post (SPOST)’s logistics business is facing tight operating margins due to two reasons 
    1. depressed freight rates and volumes across the freight forwarding industry 
    2. intense competition and price pressures in the e-commerce logistics space. 
  • SPOST’s e-commerce business outlook also remains challenging as its US acquisition TradeGlobal significantly underperformed the business case which supported the investment. 
  • While we believe that logistics should benefit from strong order fulfillment customer wins in FY18 and narrower operating losses for its e-commerce business, SPOST is not cheap at 25x FY18F PER. 
  • We believe the share is likely to remain range bound in the near term as we look forward to SPOST’s new CEO coming onboard in June 2017.


Underlying net profit declined 24.7% y-o-y and 32.8% q-o-q in 4Q17 on top of huge impairments write-offs. 

  • SPOST’s underlying net profit was S$21.4m and S$115.6m in 4Q17 and FY17 respectively. 
  • Apart from declines in high-margin domestic mail volumes, the underperformance in the quarter was also due to challenges in its logistics and freight businesses which led to weaker margins, and wider operating losses from TradeGlobal. 
  • Impairments of S$208.6m was also taken in 4Q17, largely in relation to TradeGlobal.


E-commerce logistics hub and SPC mall are key drivers in FY18F/19F. 

  • SPOST’s e-commerce logistics hub started operations in November 2016 with healthy utilisation for both its warehouse space and parcels sorting machine. 
  • Rising utilisation will benefit its bottom line directly as higher depreciation and amortisation are already factored in. With investment phase mostly over, volume ramp-up will drive earnings growth. 
  • Besides, Singapore Post Centre (SPC)’s mall re-development will double the retail floor space, which is expected to be operational towards 2H2018.


Valuation

  • We use discounted cash flow valuation (WACC 6.0%, terminal growth rate 2.2%) to derive our TP of S$1.26. The stock offers a yield of 2.8%. 
  • We maintain our HOLD rating for the stock.


Key Risks to Our View: 

  • Further escalation of e-commerce losses. E-commerce segment is facing losses following the acquisitions in Jagged Peak and Trade Global. A further escalation of losses in these businesses could depress SPOST's bottom line in the medium term.




Sachin MITTAL DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-05-15
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.26 Down 1.310



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