Singapore Post - OCBC Investment 2020-11-09: Margins Eroded Despite Strong Growth In E-commerce


Singapore Post - Margins Eroded Despite Strong Growth In E-commerce

  • Underlying net profit fell 40% despite higher revenue.
  • eCommerce drove 65% of revenue.
  • Margin pressure to continue.

1HFY21 results missed expectations on higher operating costs due to COVID-19 disruptions

  • SingPost (SGX:S08)’s 1HFY21 revenue grew 9.6% y-o-y to S$707.8m, mainly attributable to growth in the Post and Parcel and Logistics segments, partially offset by weaker performance in the Logistics segment.
  • Despite the growth in revenue, PATMI declined 42.1% to S$30.9m due to disruptions from COVID-19, partially offset by the absence of losses from discontinued operations. 1HFY21 underlying net profit fell 40% to S$31.5m, which accounted for 41% of our full year estimate, below ours and street’s expectations.
  • Meanwhile, an interim dividend of 0.5 S cent per share has been declared by SingPost, as compared to 1.0 S cent in the same period last year.

Strong eCommerce growth

  • Revenue for the Post & Parcel segment rose 5.2%, driven by strong growth in eCommerce, but partially offset by continued declines in letters and printed paper revenue. Operating profit, however, declined 67.1% in 1HFY21 to S$22.7m due to higher conveyance costs from air freight disruptions.
  • For the Logistics segment, revenue was up 20.3% y-o-y while the group reverse from an oeprating loss of S$3.5m in 1HFY20 to a gain of S$5.7m in 1HFY21, benefitting from strong eCommerce activities in Asia-Pacific.
  • On the other hand, the performance of the Property segment was impacted by COVID-19. 1HFY21 revenue was down 7.8% y-o-y while operating profit declined 11.4% to S$23.7m, due to rental rebates of ~S$3.2m and lower receipts from car-park and atrium sales.

Acquisition of 38% equity interest in Freight Management Holdings

  • Management added that tenant sales have recovered to 80% of the pre-Covid levels at SingPost Center and could see continued recovery as Singapore enters Phase 3.
  • Moving ahead, we expect margins to remain under pressure due to higher conveyance costs which has surged ~2x and SingPost may be unable to pass the costs to its customers.
  • Meanwhile SingPost announced the acquisition of 38% equity interest in Freight Management Holdings (FMH) which is a leading 4th party logistics (“4PL”) service company in Australia. We believe that the acquisition will enhance SingPost’s foothold in Australia and capture the growing eCommerce demand.
  • See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.
  • We reduce our SingPost's FY21/22 PATMI forecast by 7%/5% on higher operating costs. After adjustment, our fair value estimate for SingPost decreases from S$0.75 to S$0.71.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-11-09
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.71 DOWN 0.800