SINGAPORE POST LIMITED
S08.SI
Singapore Post (SPOST SP) - 4qfy18 Results Preview ~ No Surprises Expected In Recurring Earnings
- We do not expect any major surprises in recurring earnings in the upcoming 4QFY18 results. However, watch for possible residual write-downs.
- Maintain BUY and SOTP- based target price of S$1.60 on improving cash flows and proxy for cross-border eCommerce.
WHAT’S NEW
- Previewing upcoming results; no major surprises expected.
- Singapore Post (SPOST) is expected to release 4QFY18 results by 11 May. This report highlights what to watch out for.
STOCK IMPACT
- Expect a seasonally weaker 4QFY18. We forecast 4QFY18 underlying net profit at S$27.3m, bringing full-year underlying net profit to S$117.0m. 4QFY18 underlying net profit is expected to see a seasonal decline of 22% q-o-q, which compares well vs historical declines of 28-32% q-o-q. This is because calendar year 4Q17 tends to be the peak period, particularly for its eCommerce segment. Our FY18 underlying net profit forecast is within consensus mean of S$105m-123m.
- Any more intangible write-down? Another investors’ concern is the potential further write-down of intangible assets. As at Mar 17, its intangibles amounted to S$400.7m (S$0.18/share) which was significantly lower than its Mar 16 balance of S$594.0m. Of the total S$400.7m intangibles, S$305.1m was goodwill on acquisitions and investors will be looking at this closely, particularly for Quantium Solutions (S$77.9m goodwill) as its Hongkong arm is expected to be loss-making and this could result in some provisions or write-off.
- Expect largely neutral impact from higher terminal dues. The terminal due rates were raised from 1 Jan 18. This is the rate that SPOST compensates other postal organisations for delivery in their countries and it is determined every four years by Universal Postal Union (UPU). Although this is a negative, the impact of this will be largely mitigated by SPOST’s raise in international airmail rates for small packets since 2 Jan 18. At this stage, there is limited details in terms of the terminal due increase and we await more guidance in the upcoming 4QFY18 results.
- Positive momentum as key segments turned around in 3QFY18. The group’s 9MFY18 results already indicated incremental improvement in key segments such as postal and its eCommerce segments. In addition, 3QFY18 also saw the resumption in contribution from its newly revamped SingPost Centre retail mall. The occupancy as at Dec 17 was 86% and we understand there more tenants have signed up since then. Hence, we believe contributions from investment properties should continue its upward trajectory. In terms of the asking prices for rental rates, our channel checks indicate them at about S$6.00psf/month.
- Looking forward to solid free cash flows after major expansion and M&A. Looking ahead, we forecast SPOST’s free cash flow yield to rise to 6-7% in FY19-20F as capital expenditure has peaked, in our view. Over the past five years, the group has spent over S$1,138m in capital expenditure and investments but we estimate that future maintenance capex at only estimated at S$60m-70m p.a.
EARNINGS REVISION/RISK
- No change in our estimates, pending the release of its 4QFY18 results.
- We conservatively project a 3-year adjusted net profit CAGR of 9.5%.
VALUATION/RECOMMENDATION
- Sticking to BUY and SOTP target price of S$1.60.
- We remain sanguine on SPOST’s outlook as key divisions register better performances and free cash flow is expected to improve, with an estimated free cash flow yield of 6-7%. This should help sustain a decent dividend yield of 2.6% in FY18 and 3.0% in FY19.
SHARE PRICE CATALYST
- Better-than-expected recovery in TradeGlobal.
- Turnaround at Quantium Soluitons and easing competition in Hong Kong.
- Higher-than-expected ramp-up at eCommerce logistic hub.
Andrew Chow CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2018-04-24
SGX Stock
Analyst Report
1.600
Same
1.600
