• Results in line
• Longer term growth
• Maintain HOLD

1QFY15 results in line

Singapore Post (SingPost) reported a 4.8% YoY rise in revenue to S$210.9m and a 5.1% increase in net profit to S$39.2m in 1QFY15. Excluding one-off items, underlying net profit was S$36.2m, accounting for 24% of our full year estimate. Mail revenue rose 7.4% in the quarter on the back of growth in ecommerce related transhipment business and higher one-off corporate postings relating to the Personal Data Protection Act which came into effect in Jul 2014. Logistics revenue grew 4.1% while the retail and eCommerce division saw a 9.7% growth. However, margins continued to be pressured due to higher operating costs.

Moving fast but also taking prudent steps

No shipments attributed to Alibaba contributed to results in 1QFY15, and management emphasized that both SingPost and Alibaba are still in the initial stages of exploring areas of collaboration. Currently, both parties are in negotiations for a joint venture to create an international ecommerce logistics platform. SingPost is in its fourth year of its transformation programme, and with the support of Alibaba, the group can and may even be pressured to accelerate the building of its logistics infrastructure in the region. However, management understands the need to take prudent steps in the interest of shareholders.

Maintain HOLD

The transformation of SingPost holds great promise for the group but time is still needed for it to fill in the missing infrastructure pieces for this region. It is also hard to quantify the near-term returns on its acquisitions and investments (also with logistics being a low margin business), though they are certainly required for SingPost to become a leading e-Commerce logistics player. Still, we now impute growth assumptions of 20-35% for the logistics revenue side of the business, and based on a three-stage DCF model with a higher terminal value growth assumption of 3.0% and cost of equity assumption of 6.9%, we raise our fair value estimate for the stock to S$1.71. This implies a 27x FY15F P/E and 25x FY16F P/E, higher than the ~23x P/E that listed logistics players like Kerry Logistics and Fedex command, but lower than the ~28-30x P/Es of e-Commerce players like Start Today and Rakuten have. Maintain HOLD.

Source: OCBC Research - 6 Aug 2014