Singapore Post - OCBC Investment 2019-11-05: Time Required For Initiatives To Bear Fruit


Singapore Post - Time Required For Initiatives To Bear Fruit

  • Sluggish domestic Post & Parcel performance.
  • More time needed.
  • Slightly higher Fair Value estimate of S$1.02.

Net profit increased by 10.3% y-o-y

  • SINGAPORE POST (SingPost, SGX:S08)’s 2QFY20 revenue grew 2.0% y-o-y to S$324.4m, largely driven by International Post & Parcel, partially offset by lower revenue from Domestic Post & Parcel and freight forwarding. See SingPost Announcements.
  • Net profit increased by 10.3% y-o-y to S$27.7m, driven by improved results from associated companies and joint ventures, and the absence of exceptional losses from selling of the GD Express warrants in FY19. Excluding the exceptional items, SingPost’s underlying net profit would have fallen 4.6% y-o-y to S$26.8m in 2QFY20, which is above our estimates.

International Post & Parcel drove the growth

  • The Post & Parcel segment reported a 5.3% growth in revenue for 2Q. International Post & Parcel segment continued to drive the growth while Domestic Post & Parcel remained a drag.
  • In the Logistics segment, its revenue was down 2.5% y-o-y, impacted by the weakness in the Australian dollar. Stripping off the impact of weaker currency, revenue would have been stable.
  • Property segment’s performance was stable in 2Q with SingPost Centre’s occupancy remaining strong at close to full occupancy.
  • In terms of operating profit, Post & Parcel fell 20.8% y-o-y and 10.1% q-o-q while Property rose 3.1% y-o-y and 7% q-o-q. On the other hand, Logistics continued to report a loss (- 22.9% y-o-y) in operating activities but the loss was narrowed from S$1.8m in 1Q to S$0.9m in 2QFY20.
  • Overall, we did not see significant improvement in the core business.

New initiatives with effect from 2 Dec 2019

  • SingPost announced new package categories and higher airmail rates for international letters and registered service with effect from 2 Dec 2019. With the new package categories, efficiency and convenience could be effectively increased with parcels now delivered to the letterboxes directly. This is part of SingPost’s Future of Post transformation initiatives to meet rising eCommerce demand in Singapore. We deem this initiative largely positive for SingPost.
  • After adjustments to our cost assumptions, our fair value estimate increases marginally from S$1.00 to S$1.02. See SingPost Share Price; SingPost Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.02 UP 1.000