SINGAPORE POST LIMITED (SGX:S08)
Singapore Post - Awaiting The Reopening Of Borders
- SingPost’s 1QFY22 operating profit was flat on a y-o-y basis. E-commerce domestic volumes continued to show strong growth from e-commerce adoption. However, SingPost continues to rationalise international post and parcel to contain costs. The reopening of borders remains a key catalyst to watch out for in the near term, as it will likely aid in a substantial lowering of conveyance costs.
- Maintain HOLD with a lower target price of S$0.71.
Singapore Post (SingPost)'s 1QFY22 business updates
- Although SingPost (SGX:S08)’s 1QFY22 operating profit came in at a slightly lower-than-expected S$21m (down 2% y-o-y), we are expecting a stronger 2HFY22. Full financials were not disclosed. There was a marginal decrease in revenue due to a decline in the international post and parcel business, partly offset by higher e-commerce logistics revenue.
- Volumes from domestic e-commerce grew, international post and parcel volumes dipped. The domestic e-commerce logistics volume saw a robust growth of 21% y-o-y, driven by higher adoption of e-commerce activities, though international post and parcel volumes saw a 34% drop in 1QFY22. SingPost continues to manage volumes in the international post and parcel to rationalise costs. There was also a high-base effect from the previous year, as more customers rushed to ship more items overseas, prior to circuit breaker measures.
- Operating margins steady. Operating margins of 5.9% in 1QFY22 inched up slightly, though still well below pre-COVID-19 levels.
- Letter mail volumes saw a rise, aided by admail off a low base. Volumes of letters increased marginally, driven by higher admail volume which was off a low base compared with 1QFY21, due to circuit breaker measures. Structural decline of letter mails continue to be in place.
- Dip in occupancy at SingPost Centre from the industrial segment. While the occupancy for SingPost Centre’s retail mall and office/enrichment segments remained relatively high at 97%, a sole external tenant in the industrial segment had moved out, causing overall occupancy to fall to 93%. Work is being done to reposition the vacated space before leasing it out. The industrial segment likely contributes to a small portion of rental revenue compared with the majority retail segment.
- Logistics: Healthy growth. SingPost’s e-commerce logistics segment continued to show a healthy growth with revenue in Singapore up 16% y-o-y, while Australia was up 11% y-o-y. SingPost’s acquisition of Freight Management Holdings in Australia will also contribute on the associate level.
STOCK IMPACT
- Anticipate border reopening. SingPost’s margins have been hurt by the rise in conveyance costs, as a result of the restriction in travel activities due to COVID-19. With an increasing vaccination rate as well as the prospect of a border reopening, conveyance costs may gradually be reduced if passenger flights make a comeback. Currently, air freight rates remain elevated, though SingPost saw a slight 4% reduction in volume-related costs in 1QFY22.
EARNINGS REVISION/RISK
- Trim earnings forecasts slightly by 1% for FY22-24. We incorporate slightly lower occupancy for SingPost Centre.
VALUATION & RECOMMENDATION
- Maintain HOLD on SingPost with a lower SOTP-based target price of S$0.71. 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%.
- See
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
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https://research.uobkayhian.com/
2021-08-10
SGX Stock
Analyst Report
0.71
DOWN
0.730
