SingPost

SingPost: ($1.905) Underlying 2QFY16 profit slips on heavy e-commerce start-up costs
SingPost posted headline 2QFY16 net profit of $53.4m (+38.5% y/y), which included a one-off gain of $24.9m from the divestment of DataPost.

Stripping that out, underlying net profit dipped 4.8% to $37.5m, bringing 1HFY16 earnings to $77.8m (+1.4%), making up 45% of street estimates.

Revenue grew 19.4% to $263.2m largely on stronger contributions from its logistics and retail & e-commerce businesses pared slower mail business. A breakdown of segmental performance is as follows:

1) Mail
Revenue: $116.5m (-5.6%)
Operating profit: $35m (+2.5%)
Operating margin: 30% (+2.4ppt)
Mail revenue was negatively impacted by the cessation of contributions following the divestment of DataPost. Otherwise, mail turnover would have been stable as the postage revision in Oct '14 helped offset declining traditional letter mail volumes. Mail operating profit rose on improvements in productivity and efficiency.

2) Logistics
Revenue: $156.1m (+43.3%)
Operating profit: $7.4m (+26.2%)
Operating margin: 4.7% (-0.7ppt)
Stronger revenue for its logistics arm was largely due to higher contributions from its e-commerce logistics activities and inclusion of new subsidiaries with Quantium Solutions (+71.5% to $71.9m) and Famous (+37.8% to $60.9m) both enjoying strong revenue growth. Operating profit increased as new subsidiaries mitigated higher integration costs.

3) Retail & e-commerce
Revenue: $23.9m (+7.1%)
Operating profit: $0.2m (-94.1%)
Operating margin: 0.6% (-11.2ppt)
Revenue for its retail and e-commerce arm was driven by growth in its e-commerce business (+44.7% to $8.1m) with customer acquisitions, which offset the decline in its financial services revenue (-15.2% to $5.5m), while agency services stayed flat (+0.7% to $10.4m). But heavy expenses associated with investments in developing its e-commerce infrastructure and capabilities slashed into its operating profit.

At the group level, SingPost reported a net operating cash outflow of $37.3m versus 2QFY15’s inflow of $20.8m due to settlement of terminal dues. This plus acquisitions and capex eroded its net cash position to $87.8m from $329m a quarter earlier.

Moving forward, it expects capex to remain high for the rest of FY16 due to the redevelopment of Singapore Post Centre, construction of the e-commerce logistics hub, and continuing investment in the POPStation network.

Management also updated that it has extended a long stop date till Feb '16 for Alibaba to complete its additional 5% investment stake in SingPost for $187.1m, which will raise its stake to 14.5%.

Despite its capital commitments, the group is raising its interim DPS by 0.25¢ to 1.5¢.

At current price, the group is trading at 23.5x forward P/E, supported by an annualised yield of 3.1%. The counter is a core component of the Market Insight Growth portfolio.

Latest broker ratings:
OCBC maintains Buy with TP of $2.14
CIMB maintains Add with TP of $2.07