Singapore Post Ltd 1QFY3/20 - CGS-CIMB Research 2019-08-02: More Time Needed


Singapore Post Ltd 1QFY3/20 - More Time Needed

  • SingPost's 1QFY20 core net profit rose 3.9% y-o-y to S$25.6m on lower associate losses.
  • Operating profit fell 9.9% y-o-y on lower contribution from domestic post and parcel, while logistics and e-commerce losses were largely stable.
  • Maintain ADD with c.4% yield, stronger net cash and US sale as catalysts.

1QFY20 in line with consensus, slightly below our forecast

  • SINGAPORE POST LIMITED (SingPost, SGX:S08) reported 1QFY20 core net profit of $25.6m, which grew 3.9% y-o-y on the back of stable topline and lower share of associate losses. This met consensus expectations but was slightly below our forecast due to lower logistics profitability and higher financing costs (from adoption of SFRS 16 lease accounting).
  • There was some segmental reclassification on
    1. post and parcel (domestic, international), and
    2. logistics to comprise of e-commerce logistics and freight forwarding.
  • Interim DPS of 0.5Sct was unchanged y-o-y.

Easing postal margin pressure, revenue headwinds to monitor

  • SingPost's post and parcel revenue came in flat at S$187.3m in 1Q as the 5.2% y-o-y increase in international revenue was offset by a 6.7% y-o-y decline in domestic revenue. International mail volumes continue to grow with steady margins despite higher terminal dues, while domestic mail volume saw a steeper 8% y-o-y decline this quarter.
  • Hiring of additional postmen was completed in 1Q20 which led to a lower OPM of 20.1% (1Q19: 22.1%, 4Q19: 18.2%), but this could recover in subsequent quarters on the return of ad-mail. Other mid-term service quality initiatives should not affect its near-term earnings, in our view.

Logistics needs bigger scale

  • Logistics recorded 2.2% y-o-y lower revenue in 1Q20 as e-commerce logistics (mainly Quantium Solutions, Couriers Please) fell 7.4% y-o-y on exit of customer contracts and A$ depreciation; this was partially offset by a 3.3% uptick in freight forwarding.
  • Excluding one-offs, 1Q20 operating loss of S$1.8m would have been stable y-o-y and q-o-q. Apart from cost optimisation, SingPost sees scale and revenue growth as key to logistics turnaround.

Managing loss of US business with sale pending

  • Higher freight revenues in 1Q20 drove the 7.9% y-o-y topline growth in US e-commerce, with operating loss narrowing from 1Q19’s S$8.8m to S$6.9m (4Q19:-S$18.5m) thanks to lower labour costs and substantial write-down of assets in 4QFY19.
  • The sale process of TradeGlobal and Jagged Peak remains underway; we expect completion by end-FY20F.

Maintain Add with lower EPS and TP

  • The property segment continues to be a steady contributor to the group with S$30m revenue and S$13m operating profit. We lower our FY20-22F EPS by 4.5-6.5% to account for higher operating and financing expenses, and our DCF-based Target Price to S$1.13.
  • Maintain ADD; re-rating catalysts are logistics turnaround and successful sale of the US business. SingPost is now in a stronger net cash position of S$121m as at end-Jun 19, with c.4% dividend yield.
  • Downside risks: rising competition, and delayed disposal of US operations.

NGOH Yi Sin CGS-CIMB Research | 2019-08-02
SGX Stock Analyst Report ADD MAINTAIN ADD 1.13 DOWN 1.170