Singapore Post - DBS Research 2017-07-25: Banking On The Pace Of Turnaround

Singapore Post - DBS Vickers 2017-07-25: Banking On The Pace Of Turnaround SINGAPORE POST LIMITED S08.SI

Singapore Post - Banking On The Pace Of Turnaround

  • eCommerce still a strategic intent for SPOST.
  • Challenging operating environment for both eCommerce and Logistics segments.
  • Potential divestment of SPC mall could be a mediumterm catalyst.
  • Reiterate HOLD, Target Price S$1.26 (unchanged).



eCommerce still a strategic intent. 

  • SPOST’s new CEO, Mr Paul Coutts, has reiterated at SPOST’s AGM that eCommerce is still SPOST’s strategic intent. To justify > 10% upside from SingPost's current share price, SPOST needs to show a sharp recovery in logistics and eCommerce’s operating profit to S$42m by FY19F vs +S$31m /-S$10m in FY16/17A (excluding one-offs). 
  • We expect a slower turnaround and note that SPOST is not cheap at 25x FY18F PER. We believe the share is likely to remain range-bound in the near term even as SPOST bought back over 3m shares in the last two months, and look forward to SPOST’s new CEO’s business strategy update.


Where we differ: 

  • We believe the market is currently pricing in better recovery for both the logistics and eCommerce segments (compared to our estimates). We model operating profit for these segments to recover to ~S$27m by FY19F. 
  • While a turnaround plan is in place for TradeGlobal, we are of the view that a full recovery (operating breakeven) is likely to only kick in in FY19F. 
  • Stiff competition in the logistics segment is also likely to put pressure on logistics’ margins. Inputting slower recovery for logistics and eCommerce segments and rental contributions from SPC mall, our earnings have been revised by -5%/+3%; our revenue, earnings and TP are below consensus.


Potential Catalyst: 

  • In the near term, any turnaround from SPOST’s eCommerce segment would be a major catalyst for SPOST’s share price. 
  • In the medium term, we believe potential divestment of SPC mall could be a catalyst.


Valuation

  • We use discounted cash flow valuation (WACC 6%, terminal growth rate 2%) to derive our Target Price of S$1.26. 
  • The stock offers a yield of ~2.9%. 
  • We maintain our HOLD rating for the stock.


Key Risks to Our View

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




Sachin MITTAL DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-07-26
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.260 Same 1.260



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