Singapore Post - OCBC Investment 2017-08-07: 24.7% YoY Fall In Underlying Net Profit

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SINGAPORE POST LIMITED S08.SI

Singapore Post - 24.7% YoY Fall In Underlying Net Profit

• S$26.9m underlying net profit.
• Pressure on margins.
• Undertaking strategic review.

Underlying net profit in 1QFY18 lower YoY 

• Singapore Post (SingPost) reported a 6.2% YoY rise in revenue to S$354.1m and a 13.6% drop in net profit to S$31.0m in 1QFY18; stripping out one-off items, underlying net profit fell 24.7% to S$26.9m (+26.1% QoQ) in the quarter. 
• Though 1Q revenue met 24% of our full year estimates, underlying net profit was below our expectations, meeting 19% of our full figure. 
• The decline in the latter was due to lower domestic mail volumes, costs from planned investments as well as increased competition in the Logistics segment, losses in the US eCommerce business and associates which are investing for growth.

Blended postal margin to decline 

• In the postal segment, domestic mail revenue continued to decline with more companies implementing e-statements. This was offset by strong growth in international mail, driven by higher cross-border eCommerce deliveries, especially with higher volumes from the Alibaba group. 
• However, operating profit for the postal segment declined 13.7% YoY despite a 9.3% rise in revenue as the higher operating profit from international mail was not sufficient to offset the impact of the decline in domestic mail. 
• Looking ahead, blended postal operating margin is expected to decline with the shift in mix towards lower margin international mail (1QFY17: 30.7%, 1QFY18: 24.2%).

Executing turnaround business plan for eCommerce 

• The eCommerce segment saw an operating loss of S$4.2m in 1QFY18 vs. operating loss of S$3.5m a year ago. Management continues to execute a turnaround business plan for this segment, but TradeGlobal is not expected to be profitable for FY18. 
• As for e-log hub, we understand that the utilization level has also increased from 40-50% in 4QFY17 to 65% in 1QFY18, aided by Lazada.

Strategic review – the latest buzzword 

• Over the course of the next few months, SingPost’s CEO and the leadership team will be working with the board to review and update SingPost’s strategy, and deliver a roadmap focusing on improving the performance of the group. 
• We tweak our estimates and our DCF-derived FV rises slightly from S$1.20 to S$1.22.
• Maintain HOLD.

Low Pei Han OCBC Investment | http://www.ocbcresearch.com/ 2017-08-07

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.22 Up 1.200