Singapore Post - DBS Research 2019-11-04: Weakness Continues In Core Segments


Singapore Post - Weakness Continues In Core Segments

  • SingPost's underlying net profit declines on lower operating profit across both segments; inline with our expectations.
  • Postal segment’s operating profit declines sharply due to an accelerated decline in domestic mail.
  • Logistics segment facing revenue headwinds.
  • Maintain HOLD call, Target Price S$0.96.

What’s New

Underlying net profit declines on lower operating profit across post and parcel, logistics segments.

  • SINGAPORE POST (SingPost, SGX:S08)'s headline revenues improved 2.0% to S$324.4m largely due to international post and parcel, offset by lower domestic post and parcel and freight forwarding. Operating profit declined 22.2% to S$38.7m as all segments except property saw declines in operating profit. Underlying net profit fell 4.6% to S$26.8m. See SingPost Announcements; SingPost Latest News.
  • Note that SingPost has deconsolidated its US business segment due to Chapter 11 filings. Loss from discontinued operations narrowed to S$4.5m (2Q19: S$10.2m).

Postal segment's operating profit declined sharply.

  • Domestic post and parcel revenues fell due to an accelerated decline in business letter volumes and reduction in admail volumes. However, total revenue still improved by 5.3% to S$186.1m, boosted by higher international post and parcel revenues from increased cross-border eCommerce-related deliveries.
  • Operating profit declined to S$33.8m (-20.8% y-o-y) on lower operating margins of 18.1% (1Q19: 20.1%) as SingPost continues to incur higher costs to improve service quality standards.

Logistics segment still facing challenges.

  • Revenue declined to S$124.8m (-2.5% q-o-q) largely due to FX effects for Couriers Please in Australia. For the quarter, the loss of S$0.9m (2Q19: S$0.7m) was due to onboarding costs of eCommerce customers as well as lower profits due to lower volumes of freight forwarding.
  • Quantium Solutions continued to add new customers during the quarter.


  • SingPost has declared a quarterly dividend of 0.5 Scts this quarter, unchanged from last year. See SingPost Dividend History.
  • According to management, although operating profit has improved due to deconsolidation of its US business segment, SingPost remains careful on its expenses and dividend payouts as it seeks to rationalise the business.


Challenging post and parcel business.

  • We believe the outlook for postal business remains challenging as growth in eCommerce-related packet and parcel volumes has been unable to mitigate the impact from declines in domestic letter mail volumes which have higher margins.
  • According to management, the rate of decline in business letters has accelerated in the last two quarters as structural trend of e-substitution continues. On top of that, as terminal dues accelerate in FY20-21F, it remains uncertain as to how these changes will affect SingPost’s inbound and transshipment mail, as well as the final impact of outpayments for terminal dues.

Increase in international letter mail rates, changes in domestic postal products are steps in the right direction.

  • We believe that the recently announced increase in international letter mail rates, changes in domestic postal products are steps in the right direction. The hike in international letter mail rates may subsidise part of the increase in terminal dues given that the Universal Postal Union’s member countries have now reached an agreement on postal remuneration rates, while the latter may lead to potential cost savings as there will be reduced burden of doorstep delivery for packages.

Logistics performance likely to remain mixed.

  • Over the last two years, SingPost has been letting go of unprofitable customers at Quantium. As Quantium continues to add more customers, we believe freight forwarding business will continue to drag logistics performance due to impact from global slowdown from ongoing trade war which affected freight forwarding demand.

Valuation and recommendation

Maintain HOLD call (Target Price S$0.96) for SingPost.

  • We use discounted cash flow valuation (WACC 7%, terminal growth 3%) to derive our Target Price. Note that SingPost's FY20/21F earnings have been revised largely on the back of its eCommerce businesses. We expect the sale to conclude before FY21F. See SingPost Share Price; SingPost Target Price.
  • We maintain our HOLD call as we monitor the impact from higher terminal dues and higher operating costs incurred to improve service quality in Singapore amidst structural decline in business mail. It may take SingPost 2-3 years to overcome these challenges by investing in technology, in our view.

Rui Wen LIM DBS Group Research | Sachin MITTAL DBS Research | https://www.dbsvickers.com/ 2019-11-04
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.960 SAME 0.960