Singapore Post - UOB Kay Hian 2021-02-05: Managing Volumes & Costs

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SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Managing Volumes & Costs

• SingPost’s operating profit of S$26m was an improvement on a q-o-q basis but came in below our expectations.
• SingPost’s international postal volumes were lower (overall weight decreased -25% y-o-y) as the group managed volumes and the associated conveyance costs. We remain cautious on the back of elevated air freight rates.
• Maintain HOLD on SingPost with an unchanged target price of S$0.75. Entry price: S$0.66.

SingPost's 3QFY21 Operation Update

• SingPost (SGX:S08) provided 3QFY21 business updates, operating profit came in at S$26m (down 38% y-o-y; up 41% q-o-q). SingPost’s 9MFY21 operating profit came in at approximately S$66m, below our estimates. Full financials were not disclosed.

Marginal increase in revenue while carefully managing costs.

• SingPost's revenue in 3QFY21 of S$351m was up marginally 1% y-o-y as well as 1% q-o-q, even though 3QFY21 is a seasonally stronger quarter, given the year-end holiday e-commerce shopping.
• International post and parcel weighed in at 6.1m kg, down 25% y-o-y as the group also took a careful approach to managing international mail volumes in light of the high associated conveyance costs. As a result, SingPost expenses only increased 2% y-o-y in 3QFY21 as compared to 14% y-o-y increase seen in 2QFY21.

Operating margins improved.

• There was a slight improvement in operating margins of 7.4% in 3QFY21 (2QFY21: 5.1%), though still below pre-COVID-19 levels of double-digit operating margins.

Domestic e-commerce is a bright spot.

• Domestic e-commerce volumes rose 11% q-o-q and 36% y-o-y, driven by the peak shopping season. Revenue contribution from the segment also increased. (+22% y-o-y, +56% y-o-y).
• SingPost noted that revenue growth from e-commerce deliveries more than offset the decline from letters and printed papers though this comes off a seasonally stronger quarter in e-commerce shopping.
• According to the group, there was an increased adoption of SingPost as the preferred provider of choice for e-commerce deliveries, and could signal a higher market share for the group.

International postal costs remain the overhang.

• The international postal segment continues to be impacted by the severe disruption to international air freight out of Changi Airport. We note that air freight rates in Dec 20 are at elevated levels, almost comparable to the rates seen in May and Jun 20.
• While the group has reduced volume flows to manage costs, margins will likely be affected with high air freight rates.

Logistics: Stronger last mile delivery; Property: On the recovery trend.

• The last mile delivery business in Australia, CouriersPlease, has seen strong q-o-q volume growth of 9%, and y-o-y volume growth of 74% as a result of accelerated e-commerce adoption in the market. On the property front, SingPost Centre retail mall and office remained at close to full occupancy, with a recovery in footfall traffic and tenant sales in the quarter.

Logistics acquisition coming to the fold.

• SingPost recently completed the Tranche One acquisition of Freight Management Holdings (FMH) a leading 4th-party logistics service company in Victoria, Australia. We expect to see FMH’s contribution in the subsequent quarters.

Watching for sustained growth in domestic e-commerce.

• We opine that the segment would need to see sustained growth beyond the peak shopping season in 3QFY21 to ensure that revenue growth from the segment can fully offset the letter mail decline on a continual basis.

Cut FY21F earnings by 7%

• We cut SingPost's FY21F earnings forecast by 7%, FY22-23F earnings remain unchanged. We remain cautious on the back of high air freight rates which have impacted margins for international postal services in 3QFY21. However, we note that the group’s cost management efforts in controlling international postal volume is encouraging and could sustain earnings in the medium term.
• See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.

Maintain HOLD

• Maintain HOLD on SingPost with a lower SOTP-based target price of S$0.75. We value:
  • the mail business at 10x FY22F PE;
  • logistics business at 8.0x FY22F EV/EBITDA, both in line with peers’ average; and
  • property at a cap rate of 5%. Entry price is S$0.66.
• SingPost's share price catalyst
  • Pick-up in air travel volume.
  • Lower-than-expected decline in domestic postal services.
  • M&As.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-05

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.75 DOWN 0.760