Singapore Post - CGS-CIMB Research 2020-05-08: Near-Term Prudence

SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Near-Term Prudence

SingPost's FY3/20 core net profit was stable at S$100.2m and met our/consensus expectations. 4QFY20 net profit grew 14.6% y-o-y in the absence of US loss.
We project a weaker 1QFY21F from retail mall closure due to circuit breaker and elevated cost base, mitigated by wage support and property tax rebate.
Maintain ADD for its net cash, proxy to e-commerce and global trade recovery.

Singapore Post (SingPost, SGX:S08) reported FY20 core net profit of S$100.2m (excluding S$9.1m exceptional items), flat y-o-y and in line with our/consensus full-year forecasts at 97%/98%. 4QFY20 underlying net profit of S$16.6m was 14.6% higher y-o-y in the absence of US e-commerce loss; we expect further weakness in 1QFY21F from Covid-19 disruption.
SingPost declared a lower final DPS of 1.2 Scts, bringing FY20 DPS to 2.7 Scts which was below our expectations and implies 60% payout ratio, the lower end of its dividend policy.
While it remains in a net cash position with no major capex needs in the near-term, management has taken a prudent approach in conserving cash amid macro uncertainty.

Despite stable revenue from international mail in 4QFY20, SingPost incurred higher conveyance costs from supply chain disruption and terminal dues (wef Jan 20). Coupled with accelerated decline in letter mail and disrupted admail volumes, operating profit for post and parcel fell 47.7% y-o-y to S$18m (OPM: 10.1%).
We expect margin pressure in the near-term, though gradual opening of international borders and air capacity could pose some earnings upside.
While property segment held steady in 4Q, we forecast weaker earnings in FY21F from closure during circuit breaker, rental rebates to its tenants, as well as possibly lower rental reversions and occupancy if outbreak prolongs.

SingPost benefitted from higher domestic e-commerce volumes and strong take-ups from third-party e-commerce platforms, albeit still a small revenue base. This, together with labour constraints, strengthens the case for SingPost’s smart urban logistics project, which will also free up industrial space for its property portfolio.
Logistics’ loss narrowed to S$2.2m in 4QFY20, thanks to its asset-light model and new customers; we think recovery in HK and Australia (its bigger markets) could catalyse faster turnaround for this segment.
Apart from the S$5.2m job support scheme (JSS) relief in 4Q, we expect more wage support and property tax rebate in FY21F to mitigate the impact of Covid-19 for SingPost.

We cut our FY21-22F EPS by 6.6-6.7% on continued pressure from domestic mail and terminal dues. Our DCF-based Target Price falls to S$0.85 (7.4% WACC).
See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.
We like SingPost as a proxy to e-commerce and global trade recovery.
Downside risks: protracted virus outbreak and higher terminal dues.
Re-rating catalyst: faster lifting of international travel restrictions.

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-08

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