• Underlying net profit was in-line
• Post & Parcel and Logistics segments remained weak
• Property segment’s performance was stable

3QFY20 Revenue Fell 2.0% YoY and Underlying Net Profit Fell 5.1%

Singapore Post (SingPost)’s 3QFY20 revenue fell 2.0% YoY to S$355.9m, continued to be dragged by lower revenue from Domestic Post & Parcel and freight forwarding, partially offset by record revenue of S$159m from International Post & Parcel. Net profit decreased by 39.3% YoY to S$30.5m, due to the absence of the S$31.8m of exceptional gain on dilution of interest in 4PX recorded last year.

Excluding one-off items, underlying net profit fell 5.1% to S$31.2m, such that 9MFY20 underlying net profit accounted for 77% of our full year estimate and was in line with our expectations.

Letter Mail Volumes Remained Weak While Domestic ECommerce Continued to Grow

On a segmental basis, the Post & Parcel segment reported a 0.8% and 19.9% YoY decline in revenue and operating profit respectively for 3Q, driven by a 13.8% YoY fall in Domestic revenue and higher costs. Domestic eCommerce-related volumes continued to grow while domestic letter mail volumes remained weak in 3Q, which saw an accelerated double-digit percentage fall in volumes.

In the Logistics segment, its revenue was down 1.9% YoY, largely attributable to lower freight forwarding revenue, the weakness in the Australian dollar, as well as additional impact from the bushfires. Logistics continued to report a loss of S$0.7m operating profit but the loss was narrowed from S$0.9m in 2Q to S$0.7m in 3QFY20. The performance of the Property segment remained largely stable with revenue down 0.5% YoY while operating profit was flat at S$13.9m.

Lower FV Estimate of S$0.96

We continue to see the decline in letter mails this quarter and are likely to see this structural headwind to continue. While we see domestic eCommerce-related volumes growing double-digit, it grew from a much lower base than that of letter mail which continued to form the majority of revenue and volume. Management disclosed that the novel coronavirus has not had a material impact to the business yet. However, there could be a negative impact on global supply chain if the situation escalates and management will monitor the situation closely. After factoring the discontinuation of U.S. eCommerce businesses and adjustments to our cost assumptions, our fair value estimate is revised from S$1.02 to S$0.96.

Source: OCBC Research - 10 Feb 2020