Singapore Post — Q1 profits more than double

Singapore Post (S08)

Last close As at 23/08/2024

SGD0.43

0.01 (1.18%)

Market capitalisation

SGD979m

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Research: Industrials

Singapore Post — Q1 profits more than double

The Q125 results shine a light on the latest initiatives to underpin the inherent value within Singapore Post, which include a review of the Australian operations and ongoing discussions with the Singapore government on postal services. SingPost’s transformation from a post and parcel delivery company into a global logistics operator appears to have slipped under the radar of investors and now offers an opportunity for investors to reassess its potential. Our forecasts and valuation are unchanged and we believe there is now c 60% upside in the share price.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Singapore Post

Q1 profits more than double

Q1 results

General industrials

21 August 2024

Price

S$0.44

Market cap

S$978m

A$1.13/S$

Net debt at 30 June 2024

S$410.4m

Shares in issue

2,249.9m

Free float

78%

Code

S08

Primary exchange

SGX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.5)

(10.5)

(15.0)

Rel (local)

(2.3)

(12.0)

(20.0)

52-week high/low

S$0.52

S$0.38

Business description

Singapore Post is the national postal service provider in Singapore. The company provides domestic and international postal and courier services. However, its main revenue driver is now its Australian logistics operation, which accounted for 46% of FY23 revenue. Singapore Post also offers end-to-end e-commerce logistics solutions.

Next events

Interim results

November 2024

Analysts

Andy Murphy

+44 (0)20 3077 5700

Singapore Post is a research client of Edison Investment Research Limited

The Q125 results shine a light on the latest initiatives to underpin the inherent value within Singapore Post, which include a review of the Australian operations and ongoing discussions with the Singapore government on postal services. SingPost’s transformation from a post and parcel delivery company into a global logistics operator appears to have slipped under the radar of investors and now offers an opportunity for investors to reassess its potential. Our forecasts and valuation are unchanged and we believe there is now c 60% upside in the share price.

Year end

Revenue (S$m)

PBT*
(S$m)

EPS**
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/23

1,872.3

75.3

0.6

0.6

70.9

1.4

03/24

1,686.7

70.5

3.0

0.7

14.7

1.7

03/25e

2,124.9

106.1

2.7

1.3

16.3

2.9

03/26e

2,198.5

125.7

3.3

1.5

13.3

3.4

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **EPS is company basis (ie including exceptionals and post distribution to perpetual security holders).

Q1 benefits from M&A and rate rises

Q1 revenue increased 22.4% to S$494.8m, affected by several keys elements, including a full contribution from Border Express following its acquisition in March and the gearing effect of postal price rises in the core Singapore division, offset by weakness in the International and freight forwarding operations. At the operating level, profit more than doubled to S$24.4m largely reflecting the increase in postal rates in Singapore, which had a disproportionally positive impact. The operating margin expanded 200bp to 4.9% and net debt increased from S$350.4m at March 2024 to S$410.4m, due to the deferred M&A consideration.

Australia under review; Singapore Post discussions

In our initiation note, we highlighted the potential value in the group that was yet to be reflected in the share price, and the potential value of its non-core assets. In June 2024, the company announced that it would initiate a review of the Australian business, which could result in action that gives greater clarity to the value of this operation. Furthermore, SingPost is in discussions with the Singaporean government on a future operating model for postal services that could lower costs while broadening service accessibility and improving the customer experience. A conclusion to these discussions may be expected in the current financial year.

Valuation: Unchanged at S$0.72/share

Following the Q1 results we have maintained our existing estimates and our S$0.72/share valuation, which implies c 60% upside. The latest review, this time of the Australian business, is designed to highlight the intrinsic valuation of the Australian division and that could allow the market to reflect its true value in the share price. We believe that SingPost’s non-core assets, which are primarily investment properties located in Singapore, are of a similar value to the company’s entire market capitalisation, highlighting the hidden value in the company.

Q1 results highlight M&A and rate increases

The Q1 results highlighted the impact of numerous trends and changes, primarily revenue growth reflecting the inclusion of M&A, notably Border Express for the whole of the period. Secondly, profitability more than doubled, partly due to M&A, but most notably from the postal rate rise that was introduced in the autumn. These two positives were partly offset by weak underlying consumer markets in Australia, structural weakness in postal volumes in Singapore and post-COVID normalisation of volumes and rates in the International and Freight Forwarding markets. SingPost continues to make progress in other areas as well, notably on sustainability and unlocking shareholder value.

Q1 profit more than doubled

SingPost’s Q1 results, which saw revenue increase 22.4% to S$494.8m, were affected by several keys elements, including a full contribution from Border Express following its acquisition in March 2024 and the impact of postal price rises in the core Singapore division, offset by weakness in the International and Freight Forwarding operations. At the operating level, profit more than doubled to S$24.4m reflecting the elements mentioned above, with the increase in postal rates in Singapore having a disproportionally positive impact, moving from a loss in Q124 to a profit in Q125. The operating margin expanded 200bp to 4.9% and net debt increased from S$350.4m at March 2024 to S$410.4m (Q124: S$138.5m) due to the deferred consideration on the acquisition of Border Express of S$55m.

Exhibit 1: Q125 summary financial results

S$m

Q124

Q125

% change

Group revenue

404.1

494.8

22.4%

Group operating expenses

(391.9)

(470.7)

20.1%

Group operating profit before other income

12.2

24.1

97.5%

Other income

(0.3)

0.3

N/A

Group operating profit

11.9

24.4

105.2%

Group operating margin

2.9%

4.9%

200bp

Group net debt

138.5

410.4

196.3%

Source: Singapore Post, Edison Investment Research

Mixed operational performance due to weak markets

In the key Australian market, FMH’s organic business (ie excluding Border Express) performed steadily in a market that was suffering from weak consumer sentiment. Its fourth-party logistics (4PL) business performed well, but this strength was offset by weakness in the third-party logistics (3PL) business. Border Express grew revenue 5.3% in the period, driven by new customer acquisitions, and operating profit increased 24.4% as profits benefited from tight cost control. SingPost also completed the merger of CouriersPlease with FMH, integrating CouriersPlease’s parcel delivery services into the FMH Group and therefore complementing the overall service with B2C expertise.

In Singapore, performance improved as e-commerce volumes rose 2.9% and higher postage rates more than offset the 8.1% decline in letter mail volumes. The post office network remains unprofitable, but following the postal rate rise, the overall business was able to report a profit, having recorded a loss in the same period last year.

The International cross-border business operated in a challenging market and ‘revamped’ its operations to focus on profitable business at the expense of lower-margin volumes. Overall, volumes declined 23.8%, but margins were maintained. In Freight Forwarding, both revenue and profit declined as volumes and freight rates contracted as the end of the pandemic spike reversed.

Exhibit 2: Operating statistics

Volumes

Q124

Q125

% change

Australia ('000 items)

8,816

10,080

14.3%

Singapore

e-commerce related

6,771

6,966

2.9%

Letter mail and printed papers

95,555

87,784

-8.1%

Singapore total ('000 items)

102,326

94,750

-7.4%

International

e-commerce related

3,249

2,473

-23.9%

Letter mail and printed papers

359

277

-22.8%

International total ('000 items)

3,608

2,750

-23.8%

Source: Singapore Post

Finally, Property revenue increased due to higher rental income generated from the SingPost Centre. Overall occupancy slipped slightly, from 96.2% at the end of March to 96.0% at the end of June.

Continued progress on sustainability

SingPost takes sustainability very seriously and to this end it made progress towards its net zero targets in the period by continuing to electrify its owned delivery fleet in Singapore and expand its use of renewable energy in Singapore and Australia. In June, SingPost commenced a three-month trial of SMRT-operated trains for postal collection and will assess both the cost efficiency and the potential carbon saving of the initiative.

In Australia, CouriersPlease has relocated to two new facilities that have been built to local Green Star standards, which incorporate sustainable features such as rainwater harvesting systems, EV chargers and a 300kW solar system. The group also won the Customer Care Award from the Express Mail Service (EMS).

The search for the keys to unlock shareholder value

In our initiation note, we highlighted the potential value in the group that is yet to be reflected in the share price, and the potential value of the non-core assets. In June 2024, the company announced that it had appointed Merrill Lynch Markets Australia as advisors to explore options with regard to the Australian business. The review is expected to be concluded by the end of the year, and could result in one of the following outcomes:

an IPO of all, or a minority stake in Australia,

a sale of all, or part of the business, or

maintenance of the status quo (ie management does nothing different).

Equally, other options not listed may also be suggested or considered as a way of unlocking the value.

In Singapore, SingPost is in discussions with the government on a future operating model for postal services that could lower costs while broadening service accessibility and improving the customer experience. A conclusion to these discussions may be expected in the current financial year.

Exhibit 3: Financial summary

S$m

2020

2021

2022

2023

2024

2025e

2026e

2027e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

1,313.8

1,404.7

1,665.6

1,872.3

1,686.7

2,124.9

2,198.5

2,278.7

EBITDA

 

 

209.8

141.3

175.3

175.3

173.4

222.1

244.1

254.2

Normalised operating profit

 

 

141.8

72.5

100.8

92.7

92.3

128.0

150.0

160.1

Share-based payments

(2.8)

(3.0)

4.5

0.4

(7.4)

(4.0)

(4.0)

(4.0)

Other

4.6

9.7

6.7

0.0

0.0

0.0

0.0

0.0

Reported operating profit

143.6

79.3

112.1

93.2

84.9

124.0

146.0

156.1

Net Interest

(5.8)

(7.6)

(11.4)

(17.5)

(20.3)

(20.3)

(22.8)

(20.2)

Joint ventures & associates (post tax)

(0.1)

1.0

4.8

0.0

(1.5)

(1.5)

(1.5)

(1.5)

Exceptionals

(9.1)

(12.5)

1.9

(7.7)

36.8

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

126.8

53.5

96.1

75.3

70.5

106.1

125.7

138.3

Profit Before Tax (reported)

 

 

128.6

60.3

107.4

68.0

99.9

102.1

121.7

134.3

Reported tax

(28.3)

(13.3)

(19.6)

(29.2)

(18.4)

(30.6)

(36.5)

(40.3)

Profit After Tax (norm)

98.4

40.2

76.5

46.0

52.0

75.5

89.2

98.0

Profit After Tax (reported)

100.3

47.0

87.7

38.8

81.5

71.5

85.2

94.0

Minority interests

2.8

0.6

(4.6)

(14.1)

(3.1)

0.0

0.0

0.0

Discontinued operations

(12.0)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

89.2

40.8

71.9

31.9

48.9

75.5

89.2

98.0

Net income (reported)

91.1

47.6

83.1

24.7

78.3

71.5

85.2

94.0

Basic average number of shares outstanding (m)

2,250

2,250

2,250

2,250

2,250

2,250

2,250

2,250

EPS - pre distribution to perpetual securities holders (norm) (c)

4.05

1.82

3.20

1.42

2.17

3.35

3.96

4.36

EPS - pre distribution to perpetual securities holders (IRFS) (c)

4.05

2.12

3.69

1.10

3.48

3.18

3.79

4.18

EPS - post distribution to perpetual securities holders (norm) (c)

3.30

1.15

2.59

0.94

1.69

2.87

3.48

3.87

EPS - post distribution to perpetual securities holders (IRFS) (c)

3.39

1.46

3.09

0.62

3.00

2.69

3.30

3.69

DPS (c)

2.70

1.10

1.80

0.60

0.74

1.27

1.51

1.67

Revenue growth (%)

14.4

(-0.2)

(-28.9)

21.0

50.9

(-1.8)

0.0

0.0

EBITDA Margin (%)

16.0

10.1

10.5

9.4

10.3

10.5

11.1

11.2

Normalised Operating Margin

10.8

5.2

6.1

5.0

5.5

6.0

6.8

7.0

BALANCE SHEET

Fixed Assets

 

 

1,966.0

2,028.4

2,115.2

2,074.3

2,374.9

2,341.3

2,312.7

2,286.1

Intangible Assets

297.4

314.5

529.4

501.0

636.3

636.3

636.3

636.3

Tangible Assets

441.5

405.4

412.5

386.9

454.3

422.2

395.2

370.1

Investments & other

1,227.2

1,308.4

1,173.3

1,186.4

1,284.4

1,282.8

1,281.3

1,279.7

Current Assets

 

 

785.6

693.4

564.3

763.5

761.0

864.7

916.9

970.4

Debtors

262.1

166.4

234.1

229.8

252.4

306.1

308.6

312.1

Cash & cash equivalents

502.8

508.3

289.0

496.2

477.1

529.2

581.0

633.2

Other

20.7

18.7

41.2

37.5

31.5

29.4

27.3

25.1

Current Liabilities

 

 

(756.7)

(594.8)

(829.4)

(719.9)

(698.0)

(757.5)

(768.8)

(780.0)

Creditors

(507.9)

(507.2)

(668.1)

(634.0)

(605.8)

(653.1)

(658.4)

(665.8)

Tax and social security

(40.5)

(19.8)

(24.5)

(22.4)

(10.6)

(22.8)

(28.7)

(32.5)

Short term borrowings

(157.0)

(9.5)

(77.5)

(1.4)

(10.3)

(10.3)

(10.3)

(10.3)

Other

(51.3)

(58.4)

(59.2)

(62.2)

(71.3)

(71.3)

(71.3)

(71.3)

Long Term Liabilities

 

 

(352.6)

(455.5)

(705.9)

(743.6)

(1,017.0)

(983.6)

(950.3)

(917.0)

Long term borrowings

(207.5)

(312.8)

(439.5)

(623.0)

(816.8)

(816.8)

(816.8)

(816.8)

Other long term liabilities

(145.2)

(142.7)

(266.4)

(120.6)

(200.1)

(166.8)

(133.5)

(100.1)

Net Assets

 

 

1,642.3

1,671.4

1,144.2

1,374.3

1,421.0

1,464.9

1,510.6

1,559.5

Minority interests

(42.9)

(47.8)

165.3

7.4

(37.5)

(37.5)

(37.5)

(37.5)

Shareholders' equity

 

 

1,599.4

1,623.6

1,309.5

1,381.7

1,383.5

1,427.4

1,473.1

1,522.1

CASH FLOW

Op Cash Flow before WC and tax

156.3

115.7

162.2

121.3

162.5

165.6

179.3

188.2

Returns on investment and other

1.6

6.7

(1.3)

(18.6)

(38.4)

0.0

0.0

0.0

Working capital

24.8

109.3

(55.5)

(8.2)

(34.9)

(7.4)

2.1

3.8

Exceptional & other

(5.1)

(5.1)

(26.2)

6.3

(12.5)

(13.6)

(8.6)

(8.6)

Tax

(36.3)

(35.5)

(24.0)

(32.8)

(31.0)

(18.4)

(30.6)

(36.5)

Other

41.9

24.3

34.4

47.6

47.7

60.9

64.2

65.5

Net operating cash flow

 

 

183.2

215.4

89.5

115.7

93.4

187.1

206.4

212.3

Capex

(27.0)

(21.5)

(23.8)

(27.7)

(46.8)

(54.0)

(59.0)

(61.0)

Acquisitions/disposals

2.1

(52.3)

(33.2)

(166.4)

(178.0)

0.0

0.0

0.0

Net interest

(9.7)

(6.0)

(11.7)

(15.3)

(18.1)

(20.3)

(22.8)

(20.2)

Equity financing

46.1

(74.5)

(200.3)

356.3

159.7

(33.3)

(33.3)

(33.3)

Dividends

(94.6)

(53.8)

(41.9)

(51.5)

(29.4)

(27.6)

(39.5)

(45.0)

Other

0.7

0.8

1.8

4.2

0.3

0.0

0.0

0.0

Net Cash Flow

100.8

8.2

(219.5)

215.3

(19.0)

51.9

51.8

52.8

Opening net debt/(cash)

 

 

(101.3)

(128.6)

(178.9)

236.6

128.7

350.4

298.5

246.7

Other non-cash movements

(73.5)

50.3

(415.5)

107.9

(221.7)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(128.6)

(178.9)

236.6

128.7

350.4

298.5

246.7

194.0

Source: Singapore Post, Edison Investment Research


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This report has been commissioned by Singapore Post and prepared and issued by Edison, in consideration of a fee payable by Singapore Post. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Singapore Post and prepared and issued by Edison, in consideration of a fee payable by Singapore Post. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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