Singapore Post - UOB Kay Hian 2016-05-11: FY16 ~ No Surprises. Waiting For The Pieces To Fall Into Place.

Singapore Post - UOB Kay Hian 2016-05-11: FY16 ~ No Surprises. Waiting For The Pieces To Fall Into Place. Singpost SINGAPORE POST LIMITED S08.SI 

Singapore Post (SPOST SP) - FY16: No Surprises. Waiting For The Pieces To Fall Into Place.

  • SPOST’s FY16 net profit was in line with our expectations and its DPS of 7.0 S cents/share was maintained. 
  • Medium-term prospects remain intact. We expect rising synergies/contributions from recent investments and redevelopment of SingPost Centre to drive growth. 
  • Maintain BUY with a DCF-based target price of S$2.25.



RESULTS


• FY16 within expectation as rental income dropped off. 

  • SPOST’s FY16 underlying net profit of S$153.6m (-4% yoy) compares to our estimate of S$156.0m. 
  • Reported results were boosted by gains from the sale of its GDEX stake. 
  • FY16 revenue crossed S$1.0b, underpinned by growth in its eCommerce related activities as well as the consolidation of Trade Global (since Nov 15). 
  • As a result, 36% of FY16 revenue was derived from eCommerce related activities.

• Continued margin pressure as new investments ramp up. 

  • Cost remained elevated due to the inclusion of recently-acquired investments such as Tradeglobal and Jagged Peak, as well as cost pressure in volume-related expenses (underlying net profit margin declined 4.1ppt to 13.3% as of FY16). 
  • We also note a shift in business mix to be partly attributable to the margin pressure, where mail operating profit slipped 5.0% yoy in Q4, due to lower domestic letter mail volumes (which typically carries higher margin than international mail) as well as deconsolidation of subsidiaries divested (Datapost and Novation Solutions) during the year.

• Sustained dividend albeit a net gearing position. 

  • A final dividend of 2.5 S cents/share was declared, giving a total FY16 DPS of 7.0 S cents/share (unchanged). We believe this to be sustainable given its strong balance sheet (net gearing of only 9.8%) and declining capex from FY17 onwards.


STOCK IMPACT


• Chairman in place, now for the appointment of a GCEO. 

  • Mr Simon Israel has been appointed non-independent Chairman, where his priority will be to lead the Board through the completion of the Corporate Governance Review, review board composition and also appoint a new Group CEO. Keith Tay has relinquished his position as lead independent director of SPOST and has stepped down from the audit, nominations and executive committee. More importantly, we await the appointment of a GCEO, and believe a suitable appointment will lay a strong groundwork for SPOST’S future as a logistics and e-commerce player.

• Encouraging signs of deepening cooperation with Alibaba but further delay. 

  • We understand that SPOST and Alibaba’s working relationship has deepened since last year. As an indication, SPOST served as the major shipper for China’s Singles’ Day, and its cross border e-commerce package volume for Nov 15 increased 60% yoy to 4.6m. 
  • Additionally, early this year, SPOST won an award of recognition for the Best Partner under Alibaba’s Cainiao logistic network. 
  • However, the completion of Alibaba’s second tranche of investment in SPOST has been delayed again till 31 October due to a combination of conditions precedent as well as additional business opportunities from new investments (such as Alibaba’s investment in Lazada).

• Reverting to net gearing and other updates. 

  • SPOST reverted to a net gearing of 9.8% as at Mar 16 from a net cash in FY15 due to its high capex and investments in FY16. 
  • Otherwise, the ongoing development of SPC Retail mall is progressing well and slated for completion by mid-17 whereas the Regional eCommerce Logistics Hub has secured TOP in Apr 16 and is expected to be operational by Jul 16.



EARNINGS REVISION/RISK


• No major changes to FY17-18; introducing FY19. 

  • We have adjusted our FY17-18 net profit forecasts marginally upwards by 1-2% to factor in higher e-commerce related revenue as well as continued growth in overseas revenue going forward, following further integration and realisation of synergies from key investments such as Tradeglobal, Jagged Peak and Quantium Solutions. 
  • We also introduce our FY19 numbers.



VALUATION/RECOMMENDATION

  • BUY with a DCF target price of S$2.25. 
  • SPOST remains compelling as a logistics and e-commerce proxy. 
  • Moreover, the recent board renewal should be viewed positively and could pave the way for the appointment of a suitable GCEO.


SHARE PRICE CATALYST

  • Completion of Alibaba’s second tranche of investment
  • Higher-than-expected growth in the e-commerce and logistics businesses.




Andrew Chow CFA UOB Kay Hian | Thai Wei Ying UOB Kay Hian | http://research.uobkayhian.com/ 2016-05-11
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.23 Up 2.22


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