• Underlying net profit rose 3.9% YoY
• Pending exit from U.S business
• Continued investment to improve service quality

Improved Results From Associated Companies and JV

Singapore Post’s 1QFY20 revenue rose 1.0% YoY, or S$3.8m to S$376.4m, due to continued growth of Internal Post and Parcel from cross-border eCommerce deliveries. Net profit increased by 37.2% YoY to S$25.7m. The growth was driven by improved results from associated companies and joint ventures, and the absence of exceptional losses from selling of the GD Express warrants in FY19.

Recall that SingPost recorded an exceptional loss of S$6.0m in 1QFY19, due to fair value loss on warrants from GD Express. Excluding the exceptional items, SingPost’s underlying net profit rose 3.9% YoY to S$25.6m in 1QFY20, which is above our estimations.

Operating expenses rose 2.5% in 1QFY20, attributable to higher volume related expenses. Excluding volume-related expenses, the operating expenses would have dropped 5.1% YoY on cost management initiatives.

Reclassification of Business Segments

From 1 April 2019, SingPost reclassified the reporting of its business under four key business segments, namely Post and Parcel, Logistics, Property and U.S. Business. U.S Business comprises the business in the U.S under TradeGlobal and Jaggered Peak. Management noted that they are in the midst of exiting the US businesses and will make further announcement as appropriate.

Scaling Up to Drive Growth

In the Logistics segment, profit on operating activities fell 89.5% YoY, or S$0.8m to S$1.8m in 1QFY20, but excluding the one-off compensation payments in 1QFY19, the profit on operating activities would have been stable. Revenue was down 2.2% YoY to S$119.5m due to lower eCommerce logistics revenue (-7.4% YoY).

SingPost aims to build up the scale of its Logistics segment to increase its competitiveness in the region, so as to better capture the growing opportunities in eCommerce.

Looking ahead, we expect to see continued investment from SingPost to improve its service efficiency and quality, hence, continued pressure on margin. The successful exit of business from U.S could be a near-term catalyst but SingPost still requires some time for its initiatives to bear fruits.

Meanwhile, an interim DPS of 0.5 S cent has been declared, same as last year. We maintain our HOLD rating and fair value estimate of S$1.00 on the stock.

Source: OCBC Research - 7 Aug 2019