Singapore Post - CGS-CIMB Research 2020-04-20: When Travelling Hits A Snag…


Singapore Post - When Travelling Hits A Snag…

  • COVID-19 outbreak is likely to cause ripple effects across SingPost (SGX:S08)’s postal and logistics segments; we lower our FY3/21-22F EPS by 11.7-14.0%.
  • We also assume provision of 2 months’ rental relief for its property tenants as they suffer from lower shopper traffic and retail spending.
  • Still an ADD in view of its COVID-19 recovery, c.5% yield and net cash position.
  • Current SingPost share price level offers an attractive risk-reward.

Covid-19 ripples through postal and logistics

  • Lockdowns in multiple cities globally and a significant reduction in international freight services have caused shipment delays and affected cross-border ecommerce, particularly transshipment which makes up the bulk of SingPost’s international mail (c.70% of 9M20 postal and parcel topline). Its operating costs could also increase due to higher freight rates and loss of economies of scale.
  • While domestic ecommerce could see a pick-up as people do more online shopping at home, this currently forms a small revenue base and may be offset by weaker corporate spending on business mail as a result of lower business activities and faster shift towards digitisation.

Property landlord coping with COVID-19

  • The implementation of circuit breaker and social distancing measures in Singapore has curtailed shopper traffic to retail malls, including SingPost Centre. The property segment contributed S$53.7m operating income to the group in FY19.
  • We expect that like other property landlords, SingPost will provide rental relief to its tenants (we assume 2 months in FY21F), which could be subsidised by a 100% property tax rebate in 2020. We believe that as a suburban mall strategically located in Paya Lebar, its occupancy rate will stay healthy and its retail spending will improve once the situation returns to normal.

4QFY20F results preview

  • We cut our FY21-22F EPS by 11.7-14.0% to account for travel-related disruptions to SingPost’s postal and parcel volumes, earnings loss from its retail mall, longer turnaround for its logistics business, and macro uncertainties. See attached PDF report for DCF valuation details.
  • SingPost will report its 4Q/12MFY20F results before-market on 8 May. We project a steep decline in its 4QFY20F revenue and core PATMI respectively to c.S$235m and c.S$19m (3Q20: S$31.2m, 4Q19: -S$16.3m including ecommerce drag).

Reiterate ADD on better risk-reward

  • At current level post recent share price drop, we see at least 25% upside based on its long-term average of 20.7x FY21F P/E, vs a 13% downside if the stock de-rates to 1 s.d. below mean of 13.9x.
  • Reiterate ADD on better risk-reward and steady c.5% yield (based on 60-80% payout ratio), backed by net cash position and positive operating cashflow.
  • See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.
  • Potential re-rating catalysts: faster lifting of international travel restrictions and recovery of economic activity in China.
  • Downside risks: protracted COVID-19 outbreak, unexpected impairment and poor M&A execution.

NGOH Yi Sin CGS-CIMB Research | 2020-04-20
SGX Stock Analyst Report ADD MAINTAIN ADD 0.88 DOWN 1.020