Sing Post

Sing Post: Delivered1QFY16 net profit of $46.6m (+15.8% y/y, +20.9% q/q), forming 27% of full year consensus forecast. Excluding on-off divestment gains and M&A fees, underlying profit would have grown 8% y/y to $40.3m.

Revenue jumped 20.7% y/y to $254.6m, driven mainly by its newly acquired e-commerce and logistics subsidiaries. However, excluding new acquisitions, revenue would have been flat.

Mail revenue edged up 1.6% to $125.1m following the 15% upward revision in postage in Oct '14. This helped buffer the impact of declining traditional mail volumes and partial revenue loss after divestment of Novation Solutions and DataPost (HK).

Logistics, which includes its e-commerce logistics business, continued its strong momentum with a 43.6% surge in revenue to $140.1m, and becoming the top contributor for its second consecutive quarter, suggesting that SingPost's realignment strategy has been well carried out.

In retail and e-commerce, revenue rose 5.6% to $24.1m as vPOST and front-end web solutions business were able to offset declining sales from financial services and retail agencies.

At the operating level, expenses rose 24.9%, broadly in tandem with revenue growth. The largest cost increases came from volume-related expenses (+35.9%) due to higher international traffic and increased business activities, labour costs (+13.6%) from higher headcount arising from new subsidiaries, and increased admin charges (+25.2%) related to its transformation initiatives.

Core operating margin slipped to 20.2% from 22.5% in 1QFY15 due to the change in sales mix, continuing integration costs in its logistics business and lower agency fees for its retail offerings.

The group also booked higher other income of $13.6m (+129.2%)m mainly from one-off gains from the disposal of Novation Solutions and DataPost (HK).

Operating cash flow of $59.2m (+15.4%) was healthy, while balance sheet remained sturdy with net cash of $329m. In all, the group has invested $75.6m to improve service efficiency and expand its e-commerce logistics value chain.

For 1QFY16, the group has raised its interim DPS to 1.5¢ from 1.25¢ the previous year.

Going forward, M&As will continue to be part of the group's strategy to build scale and secure its “first-mover advantage” to capitalise on global ecommerce mega-trends. To this end, it recently announced a new tie-up with Internet giant Alibaba to create an end-to-end logistics platform.

At the current price, SingPost trades at 24.1 forward P/E, supported by an indicative yield of 3.6%. The counter is a core holding in Market Insight's Growth portfolio.