Singapore Post - OCBC Investment 2018-02-02: Recovery From Here

Singapore Post - OCBC Investment 2018-02-02: Recovery From Here SINGAPORE POST LIMITED S08.SI

Singapore Post - Recovery From Here

  • Higher underlying net profit.
  • Stronger than four years ago.
  • Well-positioned to capture opportunities.

3QFY18 results within expectations 

  • Singapore Post (SingPost) reported a 11.7% y-o-y rise in revenue to S$412.8m and a 37.2% increase in net profit to S$43.0m in 3QFY18.
  • Excluding one-off items, underlying net profit rose 11.9% to S$35.2m in the quarter. Results were in line with expectations; 9MFY18 underlying net profit met 76.5% of our full year figure. 
  • Postal saw a 4.0% increase in operating profit to S$40.1m, while logistics reported a 44.8% fall to S$4.9m. eCommerce operating losses narrowed to S$3.8m while property saw a rise in contributions.

Is SingPost worth as much (or as little) as four years ago? 

  • Recall that SingPost announced Alibaba’s first tranche of investment in May 2014 at S$1.42/share and the second tranche in Jul 2015 at S$1.74/share. Currently, SingPost’s share price is trading below Alibaba’s cost price in 2014, yet its NAV/share has grown from S$0.58/share as at Mar 2014 to S$0.77/share as at Dec 2017. This is after impairments made for entities such as TradeGlobal. 
  • The stock is currently at levels prior to the Alibaba announcement in 2014 when the market did not factor in growth from eCommerce and logistics. 
  • Yet four years on, SingPost has built up a considerable network comprising end-to-end solutions covering broadly four key areas:
    1. freight, customs & regulations management,
    2. warehousing & fulfillment,
    3. last mile delivery & returns,
    4. eCommerce web services.

Turning the corner 

  • The company has incurred significant costs previously to invest for the future and has also suffered impairments for certain investments.
  • Looking ahead, we expect earnings to improve from FY17, supported by
    1. rental property income from SPC mall,
    2. better performance in the e-commerce division and
    3. continued volume growth in the postal segment driven by international mail. 
  • Considering the risks and rewards at current levels, we see upside for the stock. We believe in the long-term growth prospects of e-Commerce logistics and that SingPost is well-positioned to capture opportunities in this segment.
  • After adjusting the terminal value in our FCFE valuation from 2% to 3%, our fair value estimate rises from S$1.26 to S$1.50.

Establishes S$1b debt issuance programme 

  • Meanwhile, the group also announced last week that it has established a S$1b multi-currency debt issuance programme in which net proceeds arising from the issue of securities under the programme will be used for general corporate purposes such as financing potential acquisitions, strategic expansions, refinancing of borrowings and general working capital.
  • SingPost is in a healthy financial position with a net cash position of S$49m, and the mail business continues to generate healthy cashflows.

Low Pei Han OCBC Investment | http://www.iocbc.com/ 2018-02-02
OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 1.50 Up 1.260