Singapore Post - UOB Kay Hian 2020-02-10: 3QFY20 Slight Miss; Awaiting Postal Improvement, Maintain HOLD.

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

Singapore Post - 3QFY20 Slight Miss; Awaiting Postal Improvement, Maintain HOLD.

  • Singapore Post reported 3QFY20 core net profit of S$31.2m (-5.1% y-o-y), slightly missing our forecasts. Domestic letter mail saw an accelerated rate of decline in the quarter while the logistics segment was impacted by Australian operations.
  • Going forward, we expect domestic postal costs to be trimmed to help arrest the top-line decline, though it will take some time to see its effects.
  • Maintain HOLD. Entry price: S$0.85.



3QFY20 RESULTS


Singapore Post (SPOST) announced 3QFY20 core net profit of S$31.2m, down 5.1% y-o-y.

  • Singapore Post (SGX:S08)'s 9MFY20 core net profit came in at S$83.6m. 9MFY20 results accounts for 79%/76% of our/consensus’ respective full-year forecasts. Note that 9M results usually account for ~85% of full-year estimates. The results are slightly below expectations. See SingPost Announcements.
  • Dividends remained unchanged at 0.5 S cents. See SingPost Dividend History.

Still no relief from domestic postal.

  • Revenue was flat (2.0% y-o-y). Excluding the US businesses, operating margin was at 11.6% (-3.5ppt y-o-y), dragged by lower contribution from domestic postal. Opex was up (+3.5% y-o-y) due to significant investments to improve service levels.

Postal: Record-high international postal insufficient to offset domestic decline.

  • International revenue saw a record-high revenue of close to S$150m but the segment continued to be impacted by the decline in domestic letter mail. International postal revenue was up 6.1% y-o-y, a slower rate increase compared to previous quarter (2QFY20: +13.2% y-o-y), while domestic postal decline accelerated in the quarter (-13.8% y-o-y) (2QFY20: -7.1% y-o-y).
  • In addition, operating costs remained challenging as higher costs were incurred to improve service quality standards, such as hiring of additional postmen to provide for the additional workload associated with increasing eCommerce deliveries.
  • Overall, operating profit from the segment dropped (-19.9% y-o-y) to S$38.1m.

Logistics: Headwinds on the Aussie front.

  • Revenue was marginally lower at S$132.9m (-1.9% y-o-y), due to a decline of freight forwarding from lower volumes since the global trade slowdown. Couriers Please (CP) was impacted by the bushfires in Australia as well as a depreciation of the Australian dollar.


STOCK IMPACT


Domestic mail decline still an overhang.

  • An accelerated decline in domestic letter mail remains a concern. Management noted that international peers have similarly recorded high single to double digit percentage decline as the industry continues to see the effects of a structural change. The group’s new package service to letterboxes was recently introduced and has seen a small uptick in demand for the service.
  • While new initiatives to leverage on Singapore Post’s advantage in letterboxes and enhance cost efficiency will continue, this is unlikely to to circumvent the top-line decline from domestic mail volumes yet.

Novel coronavirus effect currently immaterial, but watching for further effects.

  • Singapore Post noted that the novel coronavirus has not had a material impact thus far but could create further macroeconomic headwinds if the situation persists. This largely comes from the risk of a slowdown in supply-side e-commerce activities from China, such as merchants and factories, after the extended Lunar New Year break.


EARNINGS REVISION/RISK


Cut earnings by 4.0-4.8% for FY20-22F.

  • We factor in a larger decline in domestic postal given the accelerated drop in letter mails seen this quarter.


VALUATION/RECOMMENDATION


Maintain HOLD with a lower SOTP-based target price.



SHARE PRICE CATALYST

  • Lower-than-expected decline in domestic postal.
  • M&As.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-02-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.99 DOWN 1.040



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