Singapore Post - UOB Kay Hian 2021-11-08: 1HFY22 E-commerce Leading Recovery, Dragged Down By Conveyance Costs


Singapore Post - 1HFY22 E-commerce Leading Recovery, Dragged Down By Conveyance Costs

  • SingPost (SGX:S08)’s core net profit for 1HFY22 rose 19% y-o-y to S$37.4m, forming 49% of our FY22 forecasts and in line with expectations.
  • Strong growth in SingPost's earnings was led by the e-commerce and property segments. E-commerce-related revenue accounts for around 55% of total revenue while footfall and occupancy rates remain strong despite weak leasing sentiment. Conveyance costs remain high as the majority of international flights stay grounded.
  • Maintain HOLD call on SingPost with a higher target price of S$0.75 (S$0.71).

Singapore Post's 1HFY22 Results

  • SingPost reported improved 1HFY22 core net profit of S$37.4m, up 18.8% y-o-y and forming 49.2% of our estimates, in line with our expectations. 1HFY22 revenue and operating profit was up 3.3% and 28.4% y-o-y respectively, backed by stronger contributions from higher e-commerce volumes and the property segment.
  • SingPost declared a 1HFY22 dividend of 0.5 cents (similar to 1HFY20).
  • Group operating expenses increased 1.8% y-o-y, driven by higher volume growths from freight forwarding and e-commerce logistics.
  • Looking forward, the rapidly growing e-commerce segment is expected to be SingPost’s main revenue driver, with 55% of SingPost’s 1HFY22 revenue now related to e-commerce.
  • Postal: Domestic postage supported by e-commerce … 1HFY22 postal revenue and operating profit fell 17.5% and 52.6% y-o-y respectively, dragged down by the international postal segment (-26.6% y-o-y) and the absence of government grants. Management has noted that excluding grants in FY21, operating profit was relatively stable y-o-y.
  • For domestic post and parcel (DPP), 1HFY22 letter mail revenue dropped 15% y-o-y and was yet again offset by robust growth from domestic e-commerce (+32% y-o-y), marking the fourth consecutive quarter that growth in e-commerce revenue has outpaced letter mail decline. E-commerce now accounts for 40% of DPP revenue, up from 32% in FY21. Management has earmarked e-commerce as the main revenue driver moving forward.
  • … but dragged down by international postage. As of Sep 21, conveyance costs remain double of pre-COVID-19 levels as international flights stay grounded due to international border closures. The newly opened Vaccinated Travel Lanes (VTLs) may help alleviate current air freight capacity shortages but management has stated that the new VTLs would still be insufficient for freight rates to return to pre-COVID-19 levels. We reckon that conveyance costs would still remain elevated but gradually decline as Singapore gradually opens more VTLs, suppressing IPP revenue for 2HFY22.
  • Logistics: Outperformance accelerated by higher sea freight rates. Higher volume and sea freight rates drove stronger revenue for the logistics segment. 1HFY22 logistics revenue and operating profit was up 29.6% and 184.4% y-o-y respectively as freight forwarding revenue skyrocketed 63.3% y-o-y. As global supply chains remain congested, we reckon logistics would continue to outperform for the rest of FY22.
  • Property & Self Storage: Recovery underway. Revenue and operating profit were up 7.9% and 13.5% y-o-y respectively, mainly due to lower rental rebates to tenants. Property revenue was up 9.1% y-o-y as footfall (+11% y-o-y) and tenant sales improved (+33% y-o-y). SPC mall and office occupancy rates remain high at 98% despite a soft leasing market.

Increasing its stake down under.

  • SingPost recently announced that the group has further increased its stake in Freight Management Holdings (FMH) to 51% through an early exercise of its call option. As a recap, FMH is a leading 4th-party logistics (4PL) service company in Victoria, Australia in which SingPost acquired a 28% stake in Dec 20. Acquisition of another 10% in FMH (A$28.2m) is expected to be completed by end-2021.
  • Based on the latest announcement, SingPost has exercised the option early and agreed to acquire an additional 13% at a consideration of A$84.5m (S$83.7m) pending approval. The acquisition would be funded from internal cash reserves and external borrowings.
  • Immediately earnings accretive. Based on our estimates, the valuation for SingPost’s stake is at 11.4x FY21 EV/EBITDA. We opine this is fair given the robust double-digit revenue and EBITDA growths that FMH has. Once completed in FY23, we forecast that the two upcoming acquisitions would boost FY22-23 earnings by 1-5%. As Australia now contributes close to one-fifth of SingPost’s total annual revenue, up from 16% in FY21, we reckon SingPost would continue ramping up acquisitions in the region moving forward.


  • Increase FY22-FY23 earnings forecasts by 1-5%. The increase in earnings is due to larger FMH earnings estimates factored into our earnings forecasts.


  • Maintain HOLD call on SingPost with a slightly higher SOTP-based target price of S$0.75 (previously 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%.
  • While domestic operations are faring better, spearheaded by e-commerce, earnings are not likely to see uplift given elevated costs for international postal.
  • We reckon key re-rating catalysts would be the return of air freight rates to pre-COVID-19 levels, which would help boost volumes and revenue for the international post and parcel segment.
  • See

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-11-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.75 UP 0.710