Singapore Post - CGS-CIMB Research 2021-02-04: Bumpy Road To Recovery

SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Bumpy Road To Recovery

SingPost's 3QFY21 operating profit of S$26m (+41% q-o-q, -38% y-o-y) fell short of our expectations, as higher conveyance costs continued to weigh on margins.
SingPost is a beneficiary of increased e-commerce adoption, but earnings improvement hinges on aviation sector recovery.
Maintain HOLD and target price of S$0.70, based on 17.3x CY22F P/E.

In its 3QFY21 (Oct 2020 to Dec 2020) business update, SingPost (SGX:S08) reported a quarterly operating profit of S$26m (+41% q-o-q, -38% y-o-y), which we deem as below expectations as 9M20 operating profit made up 68% of both our and Bloomberg consensus’ full-year forecasts, and 4Q is typically a seasonally-weaker quarter. See SingPost's announcements.
While strong growth in e-commerce volumes in Singapore and Australia helped support a turnaround in the domestic post and parcel and logistics segments, higher conveyance costs for the international post and parcel business continued to exert pressure on SingPost's profit margins.

Riding on accelerated e-commerce adoption, SingPost’s e-commerce volume in 3Q grew 36% y-o-y and 74% y-o-y in Singapore and Australia respectively.
With the higher revenue contribution from e-commerce more than offsetting the decline from letters and printed papers, SingPost’s domestic post and parcel segment revenue was able to achieve a positive y-o-y growth for the first time in 3Q, reversing a multi-year decline.
We believe the e-commerce tailwind can support further topline growth in SingPost’s domestic post and parcel and logistics segments in FY22F.

However, SingPost’s margins are likely to remain under pressure in the near term given the surge in conveyance costs arising from the disruption to international air freight out of Changi Airport. To protect margins, we believe SingPost may see lower volumes in its international post and parcel segment.
In view of the challenging leasing market due to COVID-19, we also factor in a low-single-digit negative rental reversion for SingPost’s property segment in FY22F.

Maintain HOLD. We lower our SingPost's FY21-23F EPS forecast by 1.7-8.3% to reflect lower international mail volumes and higher conveyance cost. Our target price remains unchanged at S$0.70, still based on 17.3x P/E (0.5 s.d. below SingPost’s historical mean) as we roll forward our valuation to end-CY22.
See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.
Upside risks include stronger-than-expected volume growth riding on e-commerce tailwinds.
Downside risks include slower normalisation of the aviation industry, which is weighting on SingPost’s international post and parcel segment margins.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-04

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.700 SAME 0.700