Singapore Post – Weak Quarter

Excerpts from UOBKayHian report

Singapore Post Limited (SGX: S08)

• Singapore Post (SPOST) reported strong 1QFY23 revenue (+34.7% yoy) but weak operating profit (-46.7% yoy).
• The Domestic Postal segment underperformed as postal volumes dropped while the International Postal segment saw elevated air freight costs.
• The Logistics segment saw higher consignment volumes due to the consolidation of FMH.
• The Property segment benefitted from the relaxation of social distancing measures.

In view of strong headwinds, we downgrade to HOLD. Target price: S$0.61.

Weak quarter, dragged by lower volumes

Singapore Post released its 1QFY23 business update, with higher group revenue (+35% yoy, -4% qoq) of S$475.2m but soft operating profit (-47% yoy, -54% qoq) of S$10.6m, forming 26.2% and 9.2% of our full-year forecasts. Revenue was in line with expectations as contributions from the consolidation of Freight Management Holdings (FMH) gave a boost to overall revenue. However, rising operating costs and lower volumes led to a drop in operating profit with operating margins falling to 2.2ppt (-3.9ppt yoy, -2.2ppt qoq).

Lower volumes from industry headwinds

Volumes for the domestic post & parcel (DPP) segment were lower yoy as volumes for both e-commerce (-26% yoy, +7% qoq) and letter & printed papers fell (-2% yoy, -2% qoq). International post & postal (IPP) volumes also moderated (-33% yoy, -4% qoq) due to sporadic lockdowns in China, coupled with elevated air conveyance costs. Consignment volumes in Australia were the only positive for 1QFY23 with volumes up (+30% yoy, +39% qoq) due to the consolidation of FMH.

Singapore Post valuation/recommendation

We slash our net profit forecasts, accounting for lower growth assumptions for the DPP segment, along with lower margin assumptions. We now forecast FY22-24 PATMI at S$36.1m (S$82.5m previously), S$64.8m (S$94.2m previously) and S$92.1m (S$108.5m previously) respectively. Downgrade to HOLD with a lower PE-based target price of S$0.61 (previously: S$0.78). We have pegged our PE multiple to 21.3x, SPOST’s average long-term mean PE, to SPOST’s average net profit for FY23-25F. This is to account for SPOST’s gradual recovery in earnings. However, based on our SOTP valuation, we value SPOST at S$0.79, with the logistics and property segments valued at ~S$1.6b. Given that SPOST’s market cap is at ~S$1.5b, we think that the postal segment is being undervalued by the market. Any potential reversal in postal earnings could lead to valuation upside.

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