Singapore Post Ltd - Maybank Kim Eng 2018-05-14: Management Not Yet Delivering The E-commerce Turnaround

Singapore Post Ltd - Maybank Kim Eng 2018-05-14: Management Not Yet Delivering  The E-commerce Turnaround SINGAPORE POST LIMITED SGX: S08

Singapore Post Ltd - Management Not Yet Delivering The E-commerce Turnaround

Reduced forecasts due to continued postal weakness

  • Singapore Post's FY18 core earnings missed consensus/our estimate by 6%/12%. This was due to weaker operating profit for the mail segment after the revised terminal dues started in Jan 2018 and unexpected losses for an associate. 
  • We cut our FY19-20E EPS by 5% but maintain our DCF-based Target Price of SGD1.50 (WACC 7.6%, LTG 1.0%). 
  • Operations for all the other sectors, including international mail, US e-commerce, property income and logistics, continued to perform well. 
  • Management remains positive on building the e-commerce logistics platform and expects its mitigating measures for revised terminal dues to deliver better results in the coming quarters.

Positive financials for all sectors and better FCF

  • All the key business units continued to deliver good progress in 4Q18. Specifically in the quarter:
    1. continued robust revenue growth for international mail, 4Q18 revenue grew 37.4% y-o-y;
    2. US e-commerce segment operating loss narrowed to SGD5.8m from SGD15.1m in 4Q17;
    3. better property income from SingPost Mall, which grew 29% q-o-q, to SGD11.6m; and
    4. logistics segment 4Q18 operating profit grew 109% y-o-y as three out of four sub-segments delivered operating profit growth.
  • Furthermore, FCF improved significantly, from SGD0 to SGD136m in FY18, due to lower capex after completing two projects.

Terminal-dues impact should be mitigated

  • Management is confident in managing the earnings drag from new terminal dues, as it has put in place several mitigating measures including a price revision, and has formed more bi-lateral agreements with other postal providers. The full extent of these measures will come into effect progressively over the next few quarters.

Continued to build e-commerce logistics businesses

  • The e-commerce logistics hub continued to show good progress, where the utilisation rate of warehousing has increased to 96% in 4Q18 from 87% in 3Q18. 
  • Management is seeking to tie-up with more players to grow the business for SP Parcels.

Swing Factors


  • Faster-than-expected turnaround of Trade Global, a newly acquired e-commerce enabler for fashion and lifestyle.
  • Higher-than-expected revenue growth in e-commerce logistics, from more customers and services.
  • Higher-than-expected margins for e-commerce logistics, from economies of scale and operating leverage.


  • Inability to resolve corporate-governance conundrum, including independence of the board and inadequate disclosure.
  • Failure to extract synergies and integrate its largest acquisition, Trade Global.
  • Worse-than-expected deterioration in mail business before e-commerce logistics compensates.

John Cheong CFA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-14
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