• COVID-19 outbreak is likely to cause ripple effects across SingPost (SGX:S08)’s postal and logistics segments; we lower our FY3/21-22F EPS by 11.7-14.0%.
• We also assume provision of 2 months’ rental relief for its property tenants as they suffer from lower shopper traffic and retail spending.
• Still an ADD in view of its COVID-19 recovery, 5% yield and net cash position.
• Current SingPost share price level offers an attractive risk-reward.

Covid-19 Ripples Through Postal and Logistics

• Lockdowns in multiple cities globally and a significant reduction in international freight services have caused shipment delays and affected cross-border ecommerce, particularly transshipment which makes up the bulk of SingPost’s international mail (c.70% of 9M20 postal and parcel topline). Its operating costs could also increase due to higher freight rates and loss of economies of scale.
• While domestic ecommerce could see a pick-up as people do more online shopping at home, this currently forms a small revenue base and may be offset by weaker corporate spending on business mail as a result of lower business activities and faster shift towards digitisation.

Property Landlord Coping With COVID-19

• The implementation of circuit breaker and social distancing measures in Singapore has curtailed shopper traffic to retail malls, including SingPost Centre. The property segment contributed S$53.7m operating income to the group in FY19.
• We expect that like other property landlords, SingPost will provide rental relief to its tenants (we assume 2 months in FY21F), which could be subsidised by a 100% property tax rebate in 2020. We believe that as a suburban mall strategically located in Paya Lebar, its occupancy rate will stay healthy and its retail spending will improve once the situation returns to normal.

4QFY20F Results Preview

• We cut our FY21-22F EPS by 11.7-14.0% to account for travel-related disruptions to SingPost’s postal and parcel volumes, earnings loss from its retail mall, longer turnaround for its logistics business, and macro uncertainties.
• SingPost will report its 4Q/12MFY20F results before-market on 8 May. We project a steep decline in its 4QFY20F revenue and core PATMI respectively to S$235m and S$19m (3Q20: S$31.2m, 4Q19: -S$16.3m including ecommerce drag).

Reiterate ADD on Better Risk-reward

• At current level post recent share price drop, we see at least 25% upside based on its long-term average of 20.7x FY21F P/E, vs a 13% downside if the stock de-rates to 1 s.d. below mean of 13.9x.
• Reiterate ADD (Target Price: SGD0.88) on better risk-reward and steady 5% yield (based on 60-80% payout ratio), backed by net cash position and positive operating cashflow.
• Potential re-rating catalysts: faster lifting of international travel restrictions and recovery of economic activity in China.
• Downside risks: protracted COVID-19 outbreak, unexpected impairment and poor M&A execution.

Source: CGS-CIMB Research - 20 Apr 2020