Singapore Post Ltd - Gaining traction in ecommerce logistics

■ 2QFY16 core net profit of S$37.5m was in line with our expectation but slightly below consensus; 1H formed 50%/45% of our/consensus full-year forecasts.

■ eCommerce formed 29.0% of group revenue in 1HFY16 (1HFY15: 26.9%, FY15: 28.0%); total ecommerce revenue grew 29% yoy, driven by logistics (+90% yoy).

We keep our recommendation, target price and estimates unchanged pending tomorrow’s analysts briefing.

2QFY16 results highlights
2QFY16 core net profit of S$37.5m was down 6.8% qoq and 4.8% yoy.

This was due to:
1) loss of hybrid mail revenue given the sale of DataPost in 2QFY16 and Novation Solutions in 1QFY16,

2) lower rental income at Singapore Post Centre (SPC) with the closure for redevelopment, and

3) lower margins as operating expenses (+4.4% qoq excluding M&A fees) grew faster than revenue (+3.4% qoq).

Postage rate hike partially offsets loss in hybrid mail contributions
Mail revenue fell 6.9% qoq and 5.6% yoy to S$116.5m on lower hybrid mail contributions. Excluding hybrid mail, overall revenue for the mail segment would have fallen by a smaller 3.4% qoq and grown 1.1% yoy, partially helped by the postage rate hike. Excluding one-off gains from the sale of Novation Solutions in 1Q (S$8.4m) and DataPost in 2Q (S$24.9m), mail operating profit fell 10.1% qoq but grew 2.5% yoy.

Logistics M&A bearing fruit
Logistics revenue rose 11.4% qoq and 43.3% yoy to S$156.1m, largely driven by the acquisition of an 80% interest in Rotterdam Harbor Holding B.V. by Famous Holdings during the quarter. As a result, logistics operating profit improved 10.6% qoq and 26.2% yoy to S$7.4m. Logistics operating margin stayed flat at 4.7% in 2Q which was notable given the larger mix of lower-margin freight forwarding contributions.

Growing ecommerce contributions
In 1HFY16, ecommerce accounted for 29.0% of group revenue. This compares with 28.0% in FY15 and 26.9% in 1HFY15. On a yoy basis, total ecommerce revenue grew 29% in 1HFY16 to S$150.1m, led by logistics (S$66.1m, +90% yoy) due to M&A activities. This was followed by Retail & eCommerce (S$15.9m, +33% yoy) on higher contributions from front-end services at SP eCommerce. eCommerce mail revenue fell 2% yoy to S$68.1m, likely due to lower transshipment volumes.

Lower net cash
SPOST ended 2Q with S$87.8m in net cash, down from S$329.0m in 1Q.

This was due to:
1) construction of the eCommerce Logistics Hub,

2) acquisition of Toh Guan building,

3) redevelopment of SPC,

4) dividends, and

5) M&A. As of Sep, SPOST had commitments of S$305.5m not provided for, as well as S$258.5m for the acquisitions of Jagged Peak and TradeGlobal. This can be partially funded by the S$229.4m in net proceeds from issuance of shares and sale of 34% stake in Quantium to Alibaba.

Technical Analysis
Daily Chart
Maintain Add
We keep our Add call, DCF-based target price and earnings estimates unchanged, pending the analysts briefing tomorrow. (Read Report)

Read Related Report
1) Singapore Post - Continues to deliver amidst transformation‏ by OCBC Investment Research, published on 3 November 2015

Source : CIMB Research

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