Singpost – DBSV
Reap 3.5% yield till it takes off
- Net profit of S$39.2m (+5% y-o-y) was in line; excluding one-off gains, net profit would have been stable at S$36.2m. Interim dividend of 1.25 Scts was in line.
- Net profit was impacted by S$4m developmental costs for e-commerce and also a temporary increase in labour costs till sorting machine is upgraded by the end of 2014.
- Alibaba did not contribute much but discussions are underway as SPOST is hot on the heels of this opportunity
- BUY with S$2.00 TP based on DCF (WACC 6.3%, terminal growth 2%). Three key medium term catalysts are in place
Highlights
Group revenue was up 5% y-o-y, benefitting from ecommerce. Mail revenue grew 7% y-o-y on the back of growth in international mail and stable domestic mail from e-commerce volumes. Without e-commerce volumes, international mail would have hardly grown while domestic mail would have declined. Logistics grew 4% y-o-y despite restructuring at Quantium Solutions. Net profit was boosted by a one-off gain of ~S$3m from property sale. In discussions with Alibaba on international e-commerce logistics platform. SPOST wants to tap on e-commerce opportunities in Southeast Asia and beyond but is still negotiating with Alibaba on this front.
Our View
Upgrade of sorting machine at S$45m capex towards the end of 2014 should reduce costs. The machine will be able to sort more mails and packages and increase the throughput. However, during the transition, SPOST has hired 70 additional postmen.
Expect double-digit growth in e-commerce logistics. However, this should be partially offset by a 1-4% decline in the domestic mail segment. Given that e-commerce accounted for 26% of total revenue in FY14, one may expect a high single-digit to low double digit growth in group revenue.
Recommendation
SPOST should command a premium valuation for three reasons. Firstly, assuming that SPOST makes S$300m worth of acquisitions at 12-15x PE, it may add S$20-25m or 15-20% to our FY16F earnings. Secondly, SPOST is incurring ~S$15m developmental expenses each year in mainly hiring and training people, which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that. Thirdly, higher volumes from Alibaba could surprise in FY16F as we have assumed only ~S$50m worth of business from Alibaba in our forecasts. BUY for its 3.5% yield, while awaiting its price ascent.
Singpost – DBSV
Reap 3.5% yield till it takes off
- Net profit of S$39.2m (+5% y-o-y) was in line; excluding one-off gains, net profit would have been stable at S$36.2m. Interim dividend of 1.25 Scts was in line.
- Net profit was impacted by S$4m developmental costs for e-commerce and also a temporary increase in labour costs till sorting machine is upgraded by the end of 2014.
- Alibaba did not contribute much but discussions are underway as SPOST is hot on the heels of this opportunity
- BUY with S$2.00 TP based on DCF (WACC 6.3%, terminal growth 2%). Three key medium term catalysts are in place
Highlights
Group revenue was up 5% y-o-y, benefitting from ecommerce. Mail revenue grew 7% y-o-y on the back of growth in international mail and stable domestic mail from e-commerce volumes. Without e-commerce volumes, international mail would have hardly grown while domestic mail would have declined. Logistics grew 4% y-o-y despite restructuring at Quantium Solutions. Net profit was boosted by a one-off gain of ~S$3m from property sale. In discussions with Alibaba on international e-commerce logistics platform. SPOST wants to tap on e-commerce opportunities in Southeast Asia and beyond but is still negotiating with Alibaba on this front.
Our View
Upgrade of sorting machine at S$45m capex towards the end of 2014 should reduce costs. The machine will be able to sort more mails and packages and increase the throughput. However, during the transition, SPOST has hired 70 additional postmen.
Expect double-digit growth in e-commerce logistics. However, this should be partially offset by a 1-4% decline in the domestic mail segment. Given that e-commerce accounted for 26% of total revenue in FY14, one may expect a high single-digit to low double digit growth in group revenue.
Recommendation
SPOST should command a premium valuation for three reasons. Firstly, assuming that SPOST makes S$300m worth of acquisitions at 12-15x PE, it may add S$20-25m or 15-20% to our FY16F earnings. Secondly, SPOST is incurring ~S$15m developmental expenses each year in mainly hiring and training people, which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that. Thirdly, higher volumes from Alibaba could surprise in FY16F as we have assumed only ~S$50m worth of business from Alibaba in our forecasts. BUY for its 3.5% yield, while awaiting its price ascent.
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