• Soft 3Q results
• Impacted by TradeGlobal and lower margins
• Interim div of 0.5 S cent

3QFY17 results below expectations

Singapore Post (SingPost) reported a 16.8% YoY rise in revenue to S$369.4m but registered a 27.9% drop in net profit to S$31.4m in 3QFY17, such that 9MFY17 net profit of S$98.6m accounted for 65% of ours and the street’s full year estimates, below expectations. 9MFY17 underlying net profit was 22.6% lower at S$94.2m. The lower net profit in 3QFY17 was due to operating losses in the US eCommerce business, costs related to the new Regional eCommerce Logistics Hub, and a fall in domestic mail volumes. Volume and related expenses were greater than expected, due to higher international mail dues and higher cost of sales and outsourced services related to TradeGlobal and Jagged Peak.

Admits significant risk of impairment for TradeGlobal

According to management, margins in the eCommerce segment are under pressure amid intense competition and changing consumer behavior. The group is facing challenges in the operating environment in the US. In particular, TradeGlobal has not achieved the underlying profit assumptions of the business plan which supported SingPost’s investment in it. TradeGlobal, which is being restructured, had incurred a significant loss instead of a projected profit in the 3Q peak season and is expected to make a loss for the full year. As such, SingPost is of the view that there is a risk of significant impairment to TradeGlobal’s carrying value, and the Board will also be conducting a review of all the investments of SingPost.

Interim dividend of 0.5 S cent vs. 1.5 S cent last year

As for the logistics segment, while it is expected to benefit from growing eCommerce trends, the industry faces tight operating margins. The continued change in mix from the high margin domestic mail segment to the lower margin international mail and logistics segments should continue to drag earnings going forward, before SingPost builds up scale and enjoys productivity gains. With the lower-than-expected results, we tweak our estimates and our FV is lowered from S$1.47 to S$1.42. Maintain HOLD. An interim dividend of S$0.005/share has been declared, lower than S$0.015/share in 3QFY16. This is also lower than S$0.01/share in 2QFY17.

Source: OCBC Research - 13 Feb 2017