Singapore Post - DBS Research 2019-08-02: Awaiting Core Business To Show Signs Of Improvement

SINGAPORE POST LIMITED (SGX:S08) | SGinvestors.io SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Awaiting Core Business To Show Signs Of Improvement

  • SINGAPORE POST (SGX:S08)'s 1Q20 underlying net profit stood at S$25.6m (4% y-o-y) led by lower losses from associates and US business; Interim dividend flat at 0.5Scts – in line.
  • No improvement in the core business yet with the largest segment Post & Parcels facing both revenue and margin headwinds.
  • Maintain HOLD with unchanged Target Price of S$0.96.



What’s New


Underlying net profit was in line and rose marginally led by lower losses from associates and US business.

  • SINGAPORE POST (SingPost, SGX:S08)'s 1Q20 underlying net profit stood at S$25.6m (3.9% y-o-y) led by lower losses from associates and the US business.
  • The share of loss from associated companies and joint venture was S$0.3m compared to S$3.5m loss in 1Q19, as SingPost ceased equity accounting for 4PX and disposed its stake in Indo Trans Logistics Corporation (“ITL”) with effect from 3Q19.
  • For its US business, operating losses narrowed to S$6.9m from S$8.8m in 1Q19 due to the absence of depreciation and amortisation, as tangible and intangible assets had been written down to zero last year.

No improvement in the core business yet.

  • The core business of Post & Parcels saw operating profit drop 9% y-o-y to S$37.6m due to the discontinuation of admail (also known as junk mail) to improve service standards in Singapore coupled with hiring of additional postman and higher postman salaries.
  • Logistics business’s operating loss widened to S$1.8m vs 0.9m loss in 1Q19 but excluding one-off payment last year, operating loss was stable.
  • Under the Property segment, operating profit declined 2.3% y-o-y to S$12.9m, due to higher depreciation from improvement works carried out for the self-storage business

Business segments re-classified to support the sale of the US business.

  • SingPost has re-classified SP ecommerce’s front end wesbite design business from eComemrce segment to the logistics segment leaving eCommerce segment with only the US business – renamed as US business now.

Two key headwinds imply limited earnings growth, HOLD with Target Price of S$0.96.

  • Besides the long-standing challenge of declining domestic mail volume, SingPost faces two key headwinds:
    1. higher terminal dues adversely affecting international mail volume which has been the key growth driver so far, and
    2. higher operating costs in order to improve service quality in Singapore.
  • It may take SingPost 2-3 years to overcome these challenges by investing in technology, in our view. While we like its potential exit from the US business, it is difficult to see real growth drivers besides cost-reduction programmes over the next 2-3 years.
  • We maintain our HOLD call and Target Price of S$0.96 .





Rui Wen LIM DBS Group Research | Sachin MITTAL DBS Research | https://www.dbsvickers.com/ 2019-08-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.960 SAME 0.960



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