• Underlying net profit fell 11.2% YoY
• In depth business review to be conducted
• Dividend policy to be reviewed

Soft 1QFY17 results

Singapore Post (SingPost) reported a 30.9% YoY rise in revenue to S$333.3m but saw a 23.0% drop in net profit to S$35.9m in 1QFY17. Stripping out one-off items such as disposal gains a year ago, underlying net profit fell 11.2% to S$35.8m in the quarter, accounting for just 19% and 21% of ours and the street’s full year estimates, respectively.

This was below expectations mainly due to higher-than-expected expenses, while management summed up the decline in net profit as primarily a result of investments in business transformation: 1) loss of rental income from redevelopment of SPC Retail mall (due for completion mid 2017), 2) depreciation charges incurred on the Regional eCommerce Logistics Hub (obtained TOP in Apr 2016), and 3) investments in eCommerce IT and operational capabilities.

Bulk of operating profit still from postal

Postal operating profit was steady in 1QFY17 at S$42.1m, as the strong growth in international mail volumes from eCommerce-related activities helped offset the effects of lower domestic letter mail volumes as well as the deconsolidation of subsidiaries divested last year. For the logistics segment, operating profit rose 5.7% YoY to S$7.2m, while the eCommerce division saw operating loss of S$3.5m in 1QFY17 compared to –S$1.9m in 1QFY16 due to continued investments in the segment.

To conduct in depth review of business later

Looking ahead, SingPost will focus on execution over the upcoming peak period in Nov and Dec, especially after the acquisitions of TradeGlobal and Jagged Peak in the US. Meanwhile, as stated in SingPost’s AGM in Jul, the group will be reviewing its dividend policy to ensure there is a clear link to underlying earnings. Currently, SingPost continued to declare an interim dividend of 1.5 S cents for the quarter.

The group’s Chairman, Mr. Simon Israel, has also mentioned that when the Board is rebuilt and the group CEO is in place, an in depth review of the business will be undertaken. Given the lowerthan-expected earnings, we revise our earnings estimates and our fair value estimate drops from S$1.56 to S$1.42. Maintain HOLD.  

Source: OCBC Research - 5 Aug 2016