Singapore Post - DBS Research 2021-05-07: Expect A Slow Earnings Recovery

SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Expect A Slow Earnings Recovery

SingPost's 2H21 underlying profit of S$28.6m (-40% y-o-y, -9% h-o-h) was 13% below street expectations due to weak Post & Parcel (P&P) segment.
Dividend payout cut to 40% from previous guidance of 60-80% to preserve cash amid uncertain outlook.
Cut FY22F EPS by 24%; maintain HOLD on SingPost with a lower target price of S$0.69 for slow recovery ahead.

SingPost (SGX:S08)'s 2H21 underlying profit of S$28.6m (- 40% y-o-y, -9% h-o-h) was 13% below street expectations of S$33m. We had expected 2HFY21 profit to improve compared to 1HFY21 but were left disappointed. The miss was mainly due to the weak operating profit in the P&P segment. Operating profit of the P&P segment declined to S$21m declining by 59% y-o-y as P&P revenue fell by 10% y-o-y to S$350m. SingPost did not take-up some of the international mail business due to loss-making nature of the business.
Only 20-30% of passenger flights operated out of Changi airport in 2HFY21 compared to its normal capacity, forcing SingPost to either pay an expensive flight charge or choose an alternative path for its international parcel deliveries.
As such, operating expenses for 2HFY21 grew at 9.5%, much higher than revenue growth of 4.3%.

SingPost has proposed final dividend of S$0.006 (-50% y-o-y) taking full year dividend to S$0.011 (-59% y-o-y) as SingPost cut the payout ratio to 40% from its guidance of 60-80% to preserve cash amid uncertain outlook.

Maintain HOLD on SingPost with a lower target price of S$0.69, representing ~24x FY22F P/E, which is near its -1 standard deviation of its 4-year average P/E multiple of 23.1x. We use discounted cash flow valuation (WACC 7%, terminal growth 3%) to derive our target price.

After a big 40% decline in FY21, SingPost’s underlying net profit might recover by only 17% to S$70m in FY22F compared to our earlier expecations of S$92m. A much slower opening of passenger flights at Changi Airport is leading to a big spike in operating costs for disapatching international posts and parcels via alternative routes. This coupled with an absence of S$24.5m in FY22F from the expiry of Job Support Scheme, may cap any upside to our FY22F earnings projections.
See

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2021-05-07

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.69 DOWN 0.740