Singapore Post Ltd - CIMB Research 2016-02-05: Postman delivers more in a mile

Singapore Post Ltd - CIMB Research 2016-02-05: Postman delivers more in a mile Singpost SINGAPORE POST LIMITED S08.SI 

Singapore Post Ltd - Postman delivers more in a mile 

  • 3QFY3/16 net profit of S$43.9m was slightly ahead of our expectations. 9M formed 77%/72% of our/consensus full-year forecasts. 
  • TradeGlobal surprised with positive operating profit contributions of S$2.1m. 
  • International mail revenue grew 21% yoy in 3QFY16 due to collaboration with Alibaba, as SPOST participated in China’s Singles Day event for the first time. 
  • Logistics OP margin expanded on synergies from back-end integration. 
  • Maintain Add. We raise our FY16-18 EPS by 0.3-3% on higher volumes but our DCF-based target price falls to S$1.89 as we adjust for SPOST’s net debt position

■ Core operations up 7.2% yoy, though net profit only grew 0.7% yoy 

  • SPOST’s 3QFY16 operating profit grew 7.2% yoy to S$54.6m, driven by 2.5% growth in mail (cross-border ecommerce), 74.7% growth in logistics (operating leverage) and 138.9% growth in retail and ecommerce (TradeGlobal acquisition), partially offset by a 113.5% yoy fall in other operating profit (loss of rental income from SPC retail mall). 
  • Core net profit expanded at a slower pace of 0.7% yoy to S$43.9m on higher interest expense, lower associates’ contributions, higher taxes and minority interests. 

■ TradeGlobal surprises with positive operating profit contribution 

  • TradeGlobal contributed S$29.4m in revenue and S$2.1m in operating profit from 14 Nov-31 Dec, which surprised positively as we expected it to be loss-making. 
  • However, this time frame coincided with the peak shopping period in the US (Black Friday, Cyber Monday and Christmas), which likely led to better profits during the period than on an annualised basis. 
  • SPOST funded the S$233m acquisition via short-term debt, which brought it into a net debt position of S$176m (11.8% net gearing) for the first time. 

■ Volume growth from Alibaba collaboration 

  • International mail revenue grew 20.5% yoy to S$65.8m in 3Q, driven by cross-border ecommerce volumes as SPOST participated in China’s Singles Day for the first time. This was the result of its collaboration with Alibaba, with further opportunities to come from China’s outbound deliveries, including on AliExpress. While SPOST sold its hybrid mail operations in 1HFY16 and domestic letter volumes continued to decline, overall mail revenue/operating profit still grew at 0.4%/2.5% from higher Alibaba volumes. 

■ Synergies showed up in logistics 

  • Logistics operating margin expanded to 7.5% (3QFY15: 5.7%), the best quarterly margin in five years. This was the result of synergies from back-end integration of platforms and cost bases across its entities. 
  • We expect more synergies to come from operational efficiencies as ecommerce logistics volumes grow. 
  • eCommerce accounted for 33.4% of group revenue in 9MFY16 (9MFY15: 27.1%) after growing 53% yoy to S$278.1m. 

■ Reiterate Add 

  • We reiterate our Add call on SPOST, with growth to come from: 
    1. new collaborative opportunities with Alibaba, 
    2. operational efficiencies from back-end integration and 
    3. better contributions from monobrands as SPOST helps its customers to expand into new markets. 
  • We tweak up our FY16-18 EPS to account for better volumes, but our DCFbased target price falls to S$1.89 as we account for its new net debt position.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-02-05
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.89 Down 2.04