Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2017-08-07: Transformation Continues

Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2017-08-07: Transformation Continues SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Transformation Continues


Postal weakness led to c.10% earnings miss 

  • SingPost's 1Q18 core earnings missed our forecast by c.10% as the operating profit of postal segment fell 14% YoY due to falling domestic mail volume. On the bright side:
    1. higher volumes from Alibaba Group drove a double digit YoY growth for the international mail revenue;
    2. Operating loss from e-commerce narrowed QoQ from SGD15m to SGD4m;
    3. utilisation rate from the e-commerce logistics hub improved QoQ from 50% to 65%.
  • We cut our FY18-20E EPS by 10-11% weaker postal segment and our DCF TP (WACC 7.6%) by 5% to SGD1.22.


Mixed performance for the postal segment 

  • This segment continues to face challenges from declining domestic mail as more companies implement e-statements. However, the decline was offset by strong growth in international mail revenue, especially with higher volumes from the Alibaba Group. 
  • Nonetheless, operating margin continues to decline due to the shift to low margin international mail.
  • Operating profit for the postal segment fell 14% YoY despite an increase of 9% in revenue.


Narrowing loss in the e-commerce segment 

  • The e-commerce segment has recorded notable improvement QoQ as its operating loss narrowed. This was driven by better performance of Jagged Peak from new customers and execution of turnaround business plan for TradeGlobal. However, management expects the turnaround to take time and TradeGlobal is not expected to be profitable for FY18.


Strategic review of business strategy 

  • In the next few months, the new Group CEO, Mr. Paul Coutts and the leadership team will review and update SingPost’s strategy and deliver a performance improvement roadmap. 
  • Management highlighted that this will distinguish the core and non-core segments and identify additional investments needed for the group.


Swing Factors


Upside

  • Faster-than-expected turnaround of TradeGlobal, a newly acquired e-commerce enabler for fashion and lifestyle.
  • Higher-than-expected revenue growth in e-commerce logistics, from more customers and services.
  • Higher-than-expected margins for e-commerce logistics, from economies of scale and operating leverage.

Downside

  • Inability to resolve corporate-governance conundrum, including independence of the board and inadequate disclosure.
  • Failure to extract synergies and integrate its largest acquisition, TradeGlobal.
  • Worse-than-expected deterioration in mail business before e-commerce logistics compensates.




John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-07
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.22 Down 1.290



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