• SINGAPORE POST LIMITED (SGX:S08)'s 4Q19 net loss was impacted by S$98.7m impairment on US ecommerce, with little carrying value (and downside) left and strong earnings uplift upon sale.
• FY3/19 underlying net profit was below consensus expectations on weaker postal margins, but we expect double-digit EPS recovery in FY20-21F.
• Maintain ADD with 3-4% yield and risks priced in at 1s.d. below mean.

Look Beyond 4Q Loss and Slight Miss Against Consensus

• SINGAPORE POST LIMITED (SingPost, SGX:S08) reported a 4QFY3/19 net loss of S$75.1m, in stark contrast to 4Q18’s S$31.8m positive PATMI, largely due to a S$100.4m impairment and S$9.9m provision for restructuring of overseas operations (which includes US ecommerce and Quantium Solutions). Excluding these exceptional items, FY19 underlying net profit would have been S$100.1m (-5.8% y-o-y), accounting for 95%/94% of our/consensus’ full-year numbers.
• A final DPS of 2.0Scts was declared, bringing full-year DPS to 3.5Scts (unchanged y-o-y).

Limited Downside With Almost Full Impairment to US Ecommerce

• 4Q19 saw an impairment of S$98.7m to both TradeGlobal and Jagged Peak, larger than our initial forecast of S$20m-30m.
• The carrying value of SingPost’s US businesses have been largely written off, except for working capital that may be recoverable. We understand process for the US sale has just started, which management seeks to finalise within a year, and a few parties have indicated interest.
• The S$9.9m provision for headcount rightsizing, closure of underperforming functions, and asset consolidation, etc, could work towards containing US operating losses (FY19:-S$51.9m, FY18:-S$19.6m) till sale completion.

Postal Margins Under Pressure, Logistics Recovery Expected

• Higher international mail volume (+9.3% y-o-y) was the key driver for SingPost's 4.1% y-o-y uptick in FY19 post and parcel revenue, though operating margin fell to 21.7% (FY18: 22.4%) as a result of higher terminal dues, hiring of additional postmen with more incentive payments, and reduction in non-core ad-mail.
• Logistics topline was flattish as higher freight rates for Famous was offset by the exit of unfavourable contracts at Quantium Solutions, and stronger S$ against A$ (Couriers Please). Excluding one-offs, SingPost's operating loss narrowed to S$0.5m in FY19 (FY18: -S$5.4m).

Maintain ADD With Lower EPS and Target Price

• We now factor in weaker postal margins from the hiring of 100 more postmen (total: 200) and additional infrastructure investments, as well as softer logistics volume, which led to our FY20-21F EPS cuts of 2.3-5.5%.
• Maintain ADD with a slightly lower Target Price of S$1.17 (DCF-based, 7.6% WACC, 1.5% LTG), 3-4% dividend yield and strong operating cashflow.
• Our FY20-21F EPS recovery is underpinned by
  1. absence of associate loss (4PX),
  2. logistics turnaround with revenue growth, and
  3. US disposal.
• Downside risks could stem from competitive headwinds and delayed disposal of its US business.

Source: CGS-CIMB Research - 7 May 2019