Singapore Post - UOB Kay Hian 2022-05-17: FY22 Results Above Expectations, Only Getting Better Moving Forward


Singapore Post - FY22 Results Above Expectations, Only Getting Better Moving Forward

  • SingPost (SGX:S08) reported robust growth for both revenue and PATMI, driven by the logistics segment.
  • Domestic e-commerce volumes grew strongly but are expected to soften in the short term. Domestic letter & mail continues its decline while international post still faces elevated air freight costs, but is set to improve as outbound flight movements increase. The logistics segment was the sole outperformer, backed by the completion of a majority stake acquisition in FMH.
  • Maintain BUY. Raise target price for SingPost to S$0.90.

SingPost's FY22 Results

  • Robust revenue and above-expectation earnings. For FY22, SingPost’s revenue and PATMI grew to S$1,665.6m (+18.6% y-o-y) and S$83.1m (+74.5% y-o-y), forming 112% and 106% of our full-year expectations respectively. Final dividend increased to 1.3 cents (2HFY21: 0.6 cents), implying a 50% earnings payout ratio and bringing FY22 full-year dividend to 1.8 cents (FY21: 1.1 cents).
  • FY22 operating profit surged 41.3% y-o-y to S$112.1m, largely driven by higher operating profit from the logistics segment as Freight Management Holdings (FMH) became a subsidiary in Nov 21, along with lower overall corporate overhead expenses.

Postal: Expect margin compression.

  • Overall postal revenue (-16.3% y-o-y) and operating profit (-42.9% y-o-y) for FY22 fell, dragged by declining letter and mail along with lower International post & parcel (IPP) volumes. This was within our expectations as we expected revenue and operating profit to fall 11.0% y-o-y and 42.3% y-o-y respectively. However, excluding Job Support Scheme rebates in FY21, operating profit actually grew 3.5% y-o-y.
    • For the domestic postal segment, revenue from domestic e-commerce grew 24.1% y-o-y as the increased adoption of e-commerce continues to boost volumes (+24% y-o-y). However, management has noted that e-commerce volumes after the pandemic may soften in the short term as physical malls reopen, but long-term upward trajectory remains intact.
    • For domestic letters and mail, revenue (-16% y-o-y) and volume (-10% y-o-y) continued its downtrend, dragging down overall domestic postal revenue.
  • Looking forward, SingPost plans to invest in and upgrade existing postal infrastructure, increase cost-efficiency and improve margins, especially for domestic e-commerce.

IPP: Air freight costs remain high.

  • With elevated air freight costs and lower outbound volumes, FY22 IPP revenue (-24% y-o-y) and volumes (-25% y-o-y) shrunk. Despite Singapore reopening its borders in 4QFY22, air freight costs remains elevated at 230% of pre-pandemic levels. This is largely due to the majority of flights out of Changi Airport being narrow-bodied aircrafts, coupled with these planes flying to tourist destinations instead of SingPost’s target markets.
  • However, as flight capacity continues to recover to pre-pandemic levels, management is optimistic that air freight costs would eventually soften. Changi Airport’s status as a regional air logistics hub, along with lower air freight costs, would help boost SingPost’s IPP revenue moving forward.

Logistics: Outperformance.

  • Logistics revenue (+61.6% y-o-y) and operating profit (+293.5% y-o-y) surged in FY22, beating our previous growth expectations of +25.7% and +266.5% y-o-y respectively. The outperformance was driven by the completion of a majority stake in FMH (S$178.7m revenue contribution in 4QFY22), along with soaring sea freight rates that led to record-high profitability.
  • Freight forwarding revenue from Famous Holdings grew 69.6% y-o-y in FY22 while revenue from the Australian businesses (FMH and CouriersPlease) grew 89.5% y-o-y.
  • SingPost has plans in place to ramp up consignment volumes and drive synergies in Australia, capitalising on the growing logistics market down under. Also, for FY23, we expect sea freight rates to remain elevated, caused by ongoing supply-chain disruptions amid the Ukraine-Russia conflict.

Property: Back to pre-pandemic levels.

  • Occupancy rates at SingPost Centre (SPC) remain high with its retail segment having full occupancy while its office space softened slightly from 95.7% to 93.5% occupancy. Management has noted that it is in the process of securing new tenants for these office spaces.
  • For FY22, property revenue (-0.5% y-o-y) and operating profit (+5.7% y-o-y) have reached pre-COVID-19 levels, in line with expectations, backed by higher footfall and tenant sales as social distancing measures ease off. The y-o-y drop in revenue was due to the divestment of General Space Company in Dec 21. Management has indicated no plans to divest its interest in SPC.

SingPost - Earnings forecast and recommendation

  • We increase our FY23 and FY24 earnings forecasts by 10.6% and 2.8% respectively while adding our FY25 forecasts, on the back of a higher full-year earnings contribution from FMH while decreasing our postal segmental forecasts.
  • Maintain BUY with a higher SOTP-based target price of S$0.90 (S$0.86). In our view, SingPost is on the verge of a strong recovery, driven by the growth in e-commerce and logistics. Also, once air freight rates reach an optimal level sometime in 2HFY23/1HFY24, we expect SingPost to ramp up IPP volumes, which will help to boost overall revenue. Therefore, with an expected inflection point approaching and trading below -1 standard deviation (15.1x FY23F PE) of its five-year mean P/E (18.8x), we opine that SingPost has significant potential upside at current attractive price levels.
  • See
  • Catalysts:
    1. Pick-up in air travel, and
    2. lower-than-expected decline in domestic postal services.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.90 UP 0.860