Singapore Post Ltd - CGS-CIMB Research 2018-11-02: 2QFY19 Mixed Quarter; 3Q Is Key


Singapore Post Ltd - 2QFY19: Mixed Quarter; 3Q Is Key

  • Singapore Post's 2QFY3/19 core net profit was flat y-o-y; key positives were higher property contribution, better Post and Parcel OPM and stake dilution in 4PX.
  • We saw little reprieve in its logistics and e-commerce operating environment; but risks appear to be priced in at 18.9x FY20F P/E, below historical mean.
  • Maintain HOLD with 3.4% dividend yield; 3Q will be key to watch for execution.

2QFY19 core net profit in line with consensus; slightly above ours

  • Singapore Post (SPOST) reported 2QFY19 net profit of S$25.1m, down 12.9% y-o-y mainly due to S$3.6m losses from associates and S$2.7m fair value (FV) loss on warrants from GD Express. Excluding these exceptional items, 2QFY19 underlying net profit was S$28.1m, slightly above our expectations but in line with consensus.
  • 1HFY19 core net profit formed 54%/47% of our/consensus full-year forecasts.
  • Property income contribution grew 54.1% y-o-y to S$13.3m from SingPost Centre retail mall (committed occupancy at 99.1%).

Post and Parcel holding the fort with improved margins

  • Higher international mail volume (+4.7% y-o-y) in 2QFY19 underpinned the 1.6% topline growth in Post and Parcel, while OPM improved 0.8% pts on the back of greater synergies from the integration of last mile delivery. However, we sense management’s cautious tone on more controlled volume mix to manage profitability, as well as possible global slowdown in ecommerce volumes due to higher terminal dues.

Logistics still slow

  • Logistics reversed from 2QFY18’s operating loss of S$9.0m and registered a slight q-o-q uptick in profitability to S$0.3m in 2QFY19, as an industry-wide increase in freight rates and utilisation (under Famous Holdings) offset the revenue decline at Quantium Solutions amid ongoing customer review.
  • SPOST believes its 38% y-o-y increase in parcel sorting volumes vs. the 25% overall market growth reflects potential market share gains.

Ecommerce losses widened in 2QFY19

  • We see no improvement in ecommerce as 2Q operating losses widened to S$11.2m (1Q19: S$9.3m; 2Q18: S$3.4m) due to pricing pressures, investments in automation and higher integration costs. New customers were added but not significant enough to improve revenue for logistics and ecommerce.
  • We remain wary of unabating competition in North Asia’s logistics and US ecommerce, and will look to 3QFY19 for execution.

Maintain HOLD as we await greater visibility on turnaround

  • We raise our FY19-21F EPS by 2-3% on higher other income and better associates’ performance, but tweak our DCF-based Target Price lower to S$1.12 to factor in a higher WACC.
  • Our Target Price implies 20.3x FY20F P/E, below its historical mean of 21.8x.
  • We are likely to turn more positive on faster e-commerce turnaround and international mail growth; rising competition and poor overseas execution could pose downside risks to our HOLD call.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.12 DOWN 1.270