• Healthy results
• Lower reliance on mail
• Prospects remain bright

Results in line

Singapore Post (SingPost) reported a 8.1% YoY rise in revenue to S$220.3m and a 5.5% increase in net profit to S$37.6m in 2QFY15, such that 1HFY15 revenue and net profit accounted for 48% and 50% of our full year estimates, respectively. Mail revenue rose 3.2% YoY to S$123m in 2QFY15, boosted by increased ecommerce transshipments in the international mail business line. This offset the decline in the traditional postal business in domestic mail and hybrid mail, which remain challenging. Logistics revenue rose 15.1% YoY to S$109m, while group operating margin remained steady at 21%, similar to a year ago.

Continues to invest for the future

In the past few months, the group continued to invest in its various business segments. Strategic investments include the acquisition of FS Mackenzie (UK), Tras-Inter Co (Japan), The Store House (HK) and Axis Plaza (Malaysia). SingPost has also been upgrading its postal infrastructure in Singapore; out of the S$100m investment, S$45m was for mail sorting machines which will be fully operational in Dec.

Mail as a % of total revenue lowest in history

Meanwhile, we note that mail accounted for 56% of total revenue in 2QFY15, the lowest the group has seen in its history. This used to be more than 75% in as recent as 2009, and has been decreasing over the years as SingPost sought to reduce its reliance on the mail business. This underscores the group’s efforts to build its other business segments such as logistics, retail and ecommerce.

E-commerce related revenue grows 20% YoY

Indeed, SingPost’s ecommerce-related revenue for 1HFY15 accounted for about 27% or S$116.1m of total revenue, representing a 20% YoY growth. With close to 1,000 ecommerce customers across the group and ecommerce package volumes registering double-digit growth YoY, we increase our FCFE growth rate assumption from 9% to 10% in our 3-stage DCF model, resulting in a slightly higher fair value estimate of S$2.17 (prev. S$2.09). In line with its usual practice, SingPost has declared an interim quarterly dividend of 1.25 S cents per share, payable on 28 Nov 2014. Maintain BUY.

Source: OCBC Research - 7 Nov 2014