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Singapore Post - UOB Kay Hian 2021-05-07: FY21 Missed Expectations; Awaiting Better Visibility.

SINGAPORE POST LIMITED (SGX:S08) | SGinvestors.io SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - FY21 Missed Expectations; Awaiting Better Visibility.

  • SingPost’s core net profit for 2HFY21 was down 40% y-o-y as international post and parcel margins continue to be disrupted by air freight capacity cuts. Operating margins have been hard hit, falling to 5.6% (-5.3ppt y-o-y) in spite of the positive outlook from e-commerce demand propelling the domestic post and parcel segment as well as the logistics segment.
  • The visibility on air freight capacity is still uncertain, which could continue to weigh on margins.
  • Maintain HOLD on SingPost with a target price of S$0.73.



SINGAPORE POST'S 1HFY21 RESULTS

  • SingPost (SGX:S08) reported 2HFY21 core net profit of S$28.6m (-40% y-o-y).
  • SingPost’s FY21 core net profit was S$60.1m, below expectations. Final dividend dipped to S$0.006 (FY20: S$0.012). Full-year dividend of S$0.011 per share implies a 40% payout ratio.
  • Sequentially, the SingPost’s 4QFY21 operating profit was about S$14m, still down substantially y-o-y, as volume-related expenses continued to impact margins with higher international conveyance and commercial freight costs.

Postal revenue: Keeping a watch on margins.

  • SingPost’s postal revenue fell 10% y-o-y in 2HFY21. The group continues to manage its international postal segment carefully given the higher conveyance costs. Margins were still a concern as operating margins dipped to 5.9% for the segment (-7.3ppt y-o-y) though an inflexion point could occur if volume-related expenses can normalise to pre-COVID-19 levels.
  • Domestic postal revenue saw a 7% growth y-o-y in 2HFY21 as eCommerce growth continued to pick up, replacing revenue lost from a drop in letter volumes. SingPost continues to look forward to e-commerce deliveries through its smart letterbox which began trials in Dec 20.

Rationalising international postal costs.

  • SingPost highlighted that border closures and higher international conveyance costs out of Changi Airport continue to have an impact on the performance of international postal segment.
  • Management highlighted that volumes and demand for international postal services remains strong though cost pressures have necessitated a rationalisation of contracts and volumes undertaken for now. A normalisation of costs will likely see a return in volume and revenue growth for the segment.

Logistics: Still on a high from eCommerce.

  • Increased eCommerce activities continue to support the logistics segment. In particular, CouriersPlease revenue rose 48% on strong volume growth in Australia while Quantium Solutions and SP eCommerce benefitted from process re-engineering initiatives, leading to more customers for eCommerce logistics solutions, such as warehousing, fulfilment & front-end solutions.


STOCK IMPACT


eCommerce as the future.

  • The ratio of eCommerce to letter delivery is currently about 1:10, and is expected to be reduced with a growing proportion of eCommerce postal delivery. The initial infrastructure is starting to take shape, with SingPost’s smart letterbox concept, though rollout could still take some time.
  • Further enhancements could take the form of changes to fleet (shifting to 3/4 wheeler vehicles from scooters) to enable larger eCommerce postal package deliveries.


EARNINGS REVISION/ RISK

  • We cut our SingPost's earnings forecasts by 2-11% for 2022-23. We incorporate higher volume-related expenses on the back of elevated conveyance costs from flight disruptions.

VALUATION/ RECOMMENDATION



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/ 2021-05-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.73 DOWN 0.750



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