Singapore Post - ECommerce Needs Time To Deliver
- Underlying net profit down 24.7%.
- Impaired for TradeGlobal.
- eCommerce growth to take time.
FY17 results below expectations
- Singapore Post (SingPost) registered a 2.0% YoY rise in revenue to S$324.0m but saw a net loss of S$65.2m in 4QFY17, impacted by a S$205.7m impairment of intangible assets (mainly for TradeGlobal) and offset by S$108.7m fair value gains in investment properties.
- Excluding one-off items, underlying net profit was S$21.4m in the quarter, bringing full year underlying net profit to S$115.6m, still lower than our expectations of S$128m. This was also 24.7% lower than the underlying net profit of S$153.6m in FY16.
Competitive landscape; TradeGlobal issues need time to resolve
- On a segmental basis, the postal division saw a 4.2% decline in operating profit to S$150.7m in FY17, while logistics saw a 39.2% drop to S$23.6m.
- eCommerce incurred an operating loss of S$33.8m vs. S$7.3m in FY16. The overall landscape is competitive, while eCommerce also met a setback in TradeGlobal, which lost key customers. In the fast-moving world of eCommerce, it is currently unclear to us if this segment can turn in a net profit by FY19.
- On a positive note, the new SPC mall will open up in phases from Sep this year. We will also be monitoring the improvement in volumes from the collaboration with Alibaba.
Still waiting for eCommerce to deliver its promise
- An independent committee will conduct a thorough review of the circumstances surrounding SingPost’s consideration and approval of the TradeGlobal acquisition (S$236m in 2015).
- Meanwhile, a final dividend of 0.5 S cents/share was declared, bringing the total dividend for FY17 to 3.5 S cents (payout ratio of 66% of underlying net profit).
- We adjust our estimates and our fair value estimate drops from S$1.39 to S$1.20.
- With the rebasing of expectations of the group’s eCommerce business, it seems that a longer than expected time would be required for a significant growth in earnings from this segment.
- At the same time, a change in the group’s dividend policy has also dimmed its appeal as a dividend stock.
- Downgrade to SELL on valuation grounds