Singapore Post - OCBC Investment 2019-05-08: Steadying The Base


Singapore Post - Steadying The Base

  • Impairments made for US businesses.
  • Underlying net profit in line.
  • Investments for Post and Parcel.

FY19 underlying net profit within expectations

  • SINGAPORE POST LIMITED (SGX:S08) saw a 2.1% y-o-y fall in revenue and a S$75.1m net loss in 4QFY19, bringing full year net profit to S$19.0m.
  • Excluding exceptional items such as a S$100.4m impairment of goodwill, intangible assets and PPE, underlying net profit in 4QFY19 was S$14.5m, or 6.1% y-o-y lower. This would bring full year underlying net profit to S$100.1m, which was 5.8% lower compared to FY18.
  • As mentioned in our 1 Feb 2019 report (see: Singapore Post - Expect Impairments For US), there are risks of impairments to the US businesses.

Carrying value of US businesses substantially impaired

  • Singapore Post recorded impairment of S$98.7m to the carrying value of TradeGlobal and Jagged Peak (S$67.6m for goodwill and intangible assets; the balance S$31.0m on PPE) in 4QFY19, meaning that the carrying value of the US businesses have been substantially impaired, save for working capital that may be recoverable.
  • Do note that besides the impairments that have been made, the group expects to continue to account for operating losses of the US businesses until it completes an exit.

Investments to be made for Post and Parcel

  • On the Post and Parcel segment, operating profit was down 8.3% y-o-y in 4QFY19 due to higher expenses to improve service quality, such as hiring of additional postmen and increasing incentive payments. These relate to immediate measures that have been undertaken to improve service quality. Though admail as a standalone business is a rather profitable segment, there are steps taken to reduce this business for now due to the planning/logistics challenges it poses to the postal network.
  • Looking ahead, capital expenditure with the bulk relating to technology is expected to be incurred. Hence we expect pressure on margins, till process improvements and technology investments bear fruit in the future.

Time required for initiatives to bear fruit

  • Singapore Post is improving on processes and preparing the group to be future-ready, and this process is likely to require some time.
  • Meanwhile a final dividend of S$0.02/share has been declared, same as last year.
  • We maintain our HOLD rating and fair value estimate of S$1.00 on the stock.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-05-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.000 SAME 1.000