Singapore Post (SPOST SP) - UOB Kay Hian 2018-02-05: 9MFY18 Turnaround In Sight; Upgrade To BUY

Singapore Post (SPOST SP) - UOB Kay Hian 2018-02-05: 9MFY18 Turnaround In Sight; Upgrade To BUY SINGAPORE POST LIMITED S08.SI

Singapore Post (SPOST SP) - 9MFY18 Turnaround In Sight; Upgrade To BUY

  • 9MFY18 underlying profit of S$89.7m (-4.8% y-o-y) is in line with expectations. While SingPost is still in the transformation phase, we are encouraged by the turnaround in key segments for two consecutive quarters. 
  • Going forward, we expect earnings to be driven by higher volumes in international mail, recovery in TradeGlobal and contribution from SPC retail mall. 
  • Upgrade to BUY with a higher SOTP target price of S$1.60 (previously S$1.34).


9MFY18 underlying earnings in line with our estimate. 

  • Singapore Post’s (SPOST) 9MFY18 underlying profit declined 4.8% y-o-y to S$89.7m, in line with our estimate and at 77% of full-year forecast. 
  • Earnings were marginally dragged as revenue growth (+9.5% y-o-y) was exceeded by the faster increase in operating expenses (+13.5% y-o-y).

Respectable growth in 3QFY18 as most segments saw signs of recovery.

  • Commendably, we note that 3QFY18 underlying profit rose 11.9% y-o-y, driven by improved performances in most segments, specifically postal, eCommerce and property.

Improved free cash flow as SPOST is past heavy capex cycle. 

  • With most of the development projects completed, we expect free cash flow to improve significantly. As an indication, for 9MFY18, free cash flow improved to S$93.6m (4 S cents/share) from a negative S$11.6m in 9MFY17. 
  • Meanwhile, the group declared an interim dividend of S 0.5 cents during the quarter.

Postal: International mail charted excellent performance. 

  • For the second consecutive quarter, postal showed improved performance with 3QFY18 postal operating profit rising 4% y-o-y on the back of strong international mail revenue growth offsetting the decline from domestic mail. 
  • Notably, quarterly revenue for international mail crossed S$100m for the first time on higher cross-border e-commerce, including collaboration with Alibaba for Singles Day.

eCommerce: Significant improvement. 

  • 3QFY18 eCommerce operating loss narrowed significantly by 55.4% y-o-y to S$3.8m as TradeGlobal performed largely in line with the turnaround plan and delivered good cost control over the peak season in 3QFY18.
  • Furthermore, TradeGlobal managed to overcome the loss in revenue from two major customers, recording improvement in 3QFY18 revenue (+2.3% y-o-y). Meanwhile, Jagged Peak recorded a 43.9% y-o-y surge in revenue as volume surged over the US festive peak shopping season.

Property: Benefitted from SingPost Centre with high occupancy. 

  • Rental and property-related income increased 52.9% y-o-y, driven by rental income from the SPC retail mall which opened in Oct 17. Committed occupancy as at Dec 17 was 85.9%, up from 80.4% in Sep 17.

Logistics: eLog hub seeing progress but QSI still impacted by Hong Kong. 

  • In 3QFY18, logistics operating profit declined 45% y-o-y to S$4.9m. Performance was impacted by higher line haul and handling costs as well as lower contribution from Quantium Solutions, which continued to face competitive pressures in Hong Kong.
  • Nevertheless, eLog Hub is ramping up nicely, where warehousing utilisation improved to 87% in 3QFY18 (2QFY18: 79%, 1QFY18: 65%). Parcel sorting utilisation stood at 21%.


  • No change to our earnings forecasts.


  • Upgrade to BUY with a higher SOTP target price of S$1.60 (previously S$1.34). 
  • We roll valuation to FY19. Additionally, given the significant improvement in e-commerce, we now value the e-commerce business on 1.5x 2019F P/S (50% discount to peers’ from 90% discount previously). Upgrade to BUY on the potential turnaround.


  • Better-than-expected recovery in TradeGlobal.
  • Faster-than-expected recovery in Quantium Soluitons
  • Higher-than-expected ramp-up at eCommerce logistic hub.

Thai Wei Ying UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | 2018-02-05
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