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

SINGAPORE POST LIMITED (SGX:S08)

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 (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.

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.

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.

We lower our FY22-23F earnings per share foreast for SingPost by 4.9%-8.1% to reflect higher volume-related cost assumptions.
Nevertheless, in view of the systematic vaccine roll-out in Singapore, we see flights through Changi gradually resuming in 2H21, and hence raise our target P/E multiple to 18.8x (0.5 standard deviation below SingPost’s historical average), which lifts our target price for SingPost to S$0.77.
See
Upside risks include stronger e-commerce volume growth and border reopening.
Downside risks include covid-19 variant causing further waves of infection.

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