• SingPost reported gain of 8.1%y-y in 2Q15 revenue at S$220m, helped by growth in international ecommerce transhipment and freight activities.
• Underlying net profit slightly up 0.8%y-y to S$38m for the quarter, impacted by higher operating expenses to support growth initiatives.
• Continue to be positive on SingPost riding on rising ecommerce demand trend in the region and growth ahead.
• Maintain “Accumulate” with revised TP of S$2.03.

What is the news?

Revenue continues to grow from higher contribution from ecommerce related activities, offset by decline in traditional mail business. Operating margins remained stable while YTD earnings were slightly up 0.3%y-y at S$73.7m from higher interest expense. Overseas revenue contribution continues to grow, mainly from its logistics businesses, and accounts for 30% of total 1H14/15 revenue, compared to 28.4% in 1H13/14. eCommerce related revenue accounts for 26.9% of total revenue for 1H14/15 period (1H13/14: 23.8%). SingPost has grown its ecommerce customer base to close to 1,000, which include brand names such as Rakuten, Levi’s, Xiaomi and Adidas.

How do we view this?

We continue to have a positive view on SingPost as it continues to expand its business regionally and capturing further ecommerce opportunities on the back of a growing ecommerce demand trend. However, we are wary of declining profit margins, leading to negative impact on earnings going forward. Margins may be weighed down from escalating operating costs and costs from possible M&A and business expansion as management shared the group would continue to strengthen its regional ecommerce logistics business in the region.

Investment Action

Despite revenue growth, YTD underlying earnings grew 0.3%y-y to S$74m (1H13/14: S$73m) from higher interest expense and flat operating margin. We trimmed our FY15/16F earnings estimate by 2% and project and revised our TP to $2.03. On a positive side, we continue to like SingPost for its growth prospects, stable cash flows and 3% dividend yield and maintain our Accumulate rating.

Source: Phillip Securities Research - 7 Nov 2014