SINGAPORE (Aug 7): Maybank Kim Eng is putting national postal provider SingPost on “hold” as new Group CEO Paul Coutts and the leadership team review and update the group’s strategy and deliver a performance improvement roadmap over the next few months.
Management highlighted that this will distinguish the core and non-core segments and identify additional investments needed for the group.
In 1Q18, SingPosts’s core earnings missed Maybank’s forecast by about 10% as the operating profit of postal segment fell 14% y-o-0y due to falling domestic mail volume.
In a Monday report, John Cheong says this segment continues to face challenges from declining domestic mail as more companies implement e-statements. However, the decline was offset by strong growth in international mail revenue, especially with higher volumes from the Alibaba Group.
On the bright side, higher volumes from Alibaba Group drove double-digit y-o-y growth for international mail revenue; operating loss from e-commerce narrowed q-o-q from $15 million to $4 million while utilisation rate from the e-commerce logistics hub improved q-o-q from 50% to 65%.
Nonetheless, operating margin continues to decline due to the shift to low margin international mail. Operating profit for the postal segment fell 14% y-o-y despite an increase of 9% in revenue.
The e-commerce segment has recorded notable improvement q-o-q as its operating loss narrowed. This was driven by better performance of Jagged Peak from new customers and execution of turnaround business plan for TradeGlobal.
However, management expects the turnaround to take time and TradeGlobal is not expected to be profitable for FY18.
“We cut our FY18-20E EPS by 10-11% weaker postal segment and our DCF TP (WACC 7.6%) by 5% to $1.22,” says Cheong.
As at 2.51pm, shares in SingPost are down 2 cents to $1.30.
