Singapore Post - OCBC Investment 2018-11-02: Gradual Recovery

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SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Gradual Recovery

• Flattish underlying net profit.
• Improvement in operating activities.
• Requires patience.

2QFY19 results within expectations

• Singapore Post (SingPost) delivered a 2.2% y-o-y rise revenue to S$368.7m and a 12.9% drop in net profit to S$25.1m in 2QFY19. Excluding one-off items, underlying net profit rose 0.4% to S$28.1m in the quarter, bringing 1HFY19 to S$52.8m or 45% of our full year forecast, within expectations.
• The bottom-line was supported by improved profit on operating activities but offset by negative contribution from associated companies investing for growth and higher taxes.

Starting to reap synergies from postal and parcel delivery network

• In the Post and Parcel segment, revenue increased on growth in cross-border eCommerce deliveries, while operating profit rose 5.1% to S$42.1m in 2QFY19, driven by higher margins from last-mile eCommerce deliveries in Singapore.
• According to management, SingPost is also starting to reap operating synergies from the ongoing integration of its postal and parcel delivery networks. In Singapore, SingPost has seen average daily parcel volumes up 38% from a year ago.

Steadfast in the US

• Under Logistics, the segment reversed a loss in the previous year to record an operating profit of S$0.3m in 2QFY19. This was also slightly higher than S$0.1m in 1QFY19.
• The continued turnaround was due largely to reduced losses at Quantium Solutions, which has been reviewing unfavourable customer contracts to improve profitability, and strong contributions from the freight forwarding business.
• As for eCommerce, the segment had operating losses of S$11.2m in 2QFY19 due to
  1. pricing pressures in the US businesses,
  2. higher costs due to initiatives to integrate TradeGlobal and Jagged Peak, as well as
  3. investments in automation.
• According to management, there is no intention to sell off the US business.

Continues to explore ways to increase collaboration with Cainiao

• Meanwhile, SingPost continues to explore initiatives with Alibaba’s Cainiao to increase volumes through SingPost’s channels.
• We tweak our earnings estimates and with the increase in risk premia along with the market sell-down, we increase our cost of equity assumptions and our fair value estimate slips to S$1.23.
• In line with its usual practice, an interim dividend of 0.5 S cent has been declared.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2018-11-02

SGX Stock Analyst Report BUY MAINTAIN BUY 1.23 DOWN 1.500