Singapore Post - CGS-CIMB Research 2020-11-06: Make Changi Great Again


Singapore Post - Make Changi Great Again

  • SingPost's 1HFY21 underlying net profit (-40.0% y-o-y) was a miss, which we attribute to the structural domestic mail weakness and international margin pressure.
  • SingPost’s EPS improvement hinges on aviation recovery, which has limited visibility in the near term. Downgrade to HOLD with lower EPS and target price.
  • Our HOLD call is underpinned by SingPost's S$195m net cash, 3-4% dividend yield in FY21-23F, and medium term growth initiatives.

SingPost's 1HFY21 net profit fell 40.0% y-o-y, below expectations

  • SingPost (SGX:S08) reported 1HFY3/21 underlying net profit of S$31.5m, which accounted for 37%/ 36% of our/consensus full-year forecasts. Despite the 9.6% y-o-y increase in topline on the back of higher international mail and ecommerce logistics revenue, its 40.0% y-o-y profitability decline stemmed from higher international conveyance and freight costs as a result of COVID-19 disruption.
  • SingPost declared an interim dividend of 0.5 cents (1HFY20: 1cents) and had a net cash position of S$195.1m at end-Sep 20.

Expect near-term margin pressure from Post and Parcel to linger

  • Apart from the 9.5% y-o-y domestic mail decline in 1H21, the long delays and limited cargo space also eroded Post and Parcel’s EBIT margin to 5.8% (1H20: 18.4%, FY20: 16.7%). SingPost was unable to pass on the higher costs to its consumers, nor forfeit these transshipment routes entirely.
  • While the surge in conveyance costs remains on an easing trend, we see limited visibility in the aviation recovery to pre-Covid levels in the near-term.

Ecommerce adoption and logistics turnaround are key positives

  • Logistics segment benefitted from higher ecommerce volume and solutions demand, and posted a strong turnaround of S$5.7m operating profit in 1H21 (1H20: -S$3.5m loss). We believe this would be further strengthened by its recent S$84m stake acquisition of Freight Management Holdings in Australia.
  • The higher proportion of ecommerce revenue (32% of total domestic post and parcel revenue vs. 1H20’s 18%) is a testament to SingPost as a long-term ecommerce proxy.
  • Occupancy at the SingPost Centre retail mall and office remains stable at 100%/99% at Sep 20, with lower income due to S$3.2m rental rebates.

Downgrade SingPost to HOLD on lower EPS and target price

NGOH Yi Sin CGS-CIMB Research | 2020-11-06
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.70 DOWN 0.770