Singapore Post

Singapore Post's 3QFY17 underlying net profit fell 28.5% to $31.4m, bringing 9MFY17 core earnings to $94.2m (-22.6%). Meanwhile, headline 9MFY17 net profit of $98.6m (-31.3%) met only 70% of full year consensus forecast.

The poor set of results was primarily due to the consolidation of US subsidiary Trade Global, which fell into a deeper loss from structural issues, as well as deteriorating postal business.

For the quarter, revenue climbed 16.8% to $369.4m, mainly hoisted by more than doubling in e-commerce sales following the inclusion of TradeGlobal (acquired Nov '15) and Jagged Peak (Mar '16).

Segment Performance:
Postal: Revenue grew 2.9% to $143.3m, mainly from e-commerce-related deliveries, especially from the Alibaba group, although that was offset by falling domestic mail volumes as financial institutions push towards e-statements. Operating profit fell 6.6% to $38.5m from the shift towards lower-margin international mails.

Logistics: Revenue rose 5.6% to $171.3m, driven by higher contribution from Couriers Please and Quantium Solutions from increased e-commerce activities. However, operating profit tumbled 30.2% to $8.8m, reflecting costs from the new Regional eCommerce Logistics Hub, and pricing pressures.

E-commerce: Revenue surged 106.8% to $81.1m from consolidation of US subsidiaries TradeGlobal and Jagged Peak, although operationally, the segment swung to loss of $8.4m from $1.8m profit last year.

TradeGlobal was hit by the loss of two key customers (one decided to in-source its freight operations, another filed for bankruptcy) and cost pressures from tight competition for labour. On the other hand, Jagged Peak posted good growth in volumes that supported top and bottom line.

SingPost's board has flagged the risk of a significant asset impairment for TradeGlobal, given its major underperformance. A write-off of the entire $169m goodwill could wipe off entire FY17e earnings, based on Maybank KE estimates.

In view of its poor performance and possible kitchen sinking in its 4Q results, the group slashed its interim DPS to 0.5¢ from 1.5¢ in 3QFY16, which has led to downward revision of its FY17 dividend to 4.7¢ (FY16: 7¢).

Separately, SingPost has completed the issuance of shares to Alibaba in Jan, raising the Chinese e-commerce giant's stake to 14.4% from 10.2% previously, deepening the strategic partnership between the duo.

Meanwhile, the redevelopment of SPC Mall is expected to be completed around 1H17, and leasing of the mall is on track.

SingPost is currently trading at 23.7x FY17e consensus P/E.

Latest broker ratings:
Maybank KE maintains Hold, cuts TP to $1.34 from $1.75
OCBC maintains Hold, cuts TP to $1.42 from $1.47
UOB Kay Hian maintains Hold, cuts TP to $1.46 from $1.76
CIMB maintains Add, cuts TP to $1.62 from $1.76
Deutsche maintains Buy with TP of $1.70
Nomura maintains Buy, cuts TP to $1.75 from $1.90