Singapore Post - CGS-CIMB Research 2021-05-06: Not Out Of The Woods Yet


Singapore Post - Not Out Of The Woods Yet

  • SingPost's 2HFY21 underlying net profit of S$29m (-9% h-o-h, -40% y-o-y) fell short of our expectations. 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 on SingPost with a higher target price of S$0.77, based on 18.8x CY22F P/E (0.5 standard deviation below historical average).

SingPost's 2HFY21 results below expectations; dividends cut

  • SingPost (SGX:S08) reported 2HFY21 (Oct 2020 to Mar 2021) underlying net profit of S$28.6m (-9% h-o-h, -40% y-o-y). Results were below expectations, as FY21 net profit made up 87%/92% of our/Bloomberg consensus forecasts.
  • While SingPost managed to achieve topline growth of 4% y-o-y in 2H, supported by e-commerce volume growth in both Singapore and Australia, key negative remains higher conveyance costs for the international post and parcel business which continued to exert pressure on profit margins.
  • Final dividend of S$0.006/share was declared, representing a drop in dividend payout ratio to 41% for FY21 (FY20: 54%), as SingPost looks to preserve cash in view of an uncertain outlook due to COVID-19 and for the ongoing execution of transformation initiatives.

Continued adjustments to better ride e-commerce tailwind

  • The 57% y-o-y volume growth for domestic e-commerce in 4Q helped SingPost to see positive y-o-y growth in its domestic post and parcel (DPP) segment revenue for the second consecutive quarter, post a multi-year decline.
  • E-commerce volumes now contribute 34% of DPP revenues in FY21, up from 32% in 1H21. While we are positive on SingPost’s ability to capture the e-commerce tailwinds, DPP margins could remain pressured in the near-term given e-commerce’s lower margin profile. SingPost is carrying out operational redesign for its postal network to better cater to e-commerce parcels.

Lingering headwinds

  • In our view, the key headwind for SingPost remains the slow recovery in international passenger flight volumes out of Changi Airport. Conveyance costs remain almost 2x that of pre-COVID levels as of Mar 21, and we expect SingPost to remain selective in taking orders to maintain profitability for 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 on SingPost with a higher target price of S$0.77

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-06
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.77 UP 0.700