Monday, 13 February 2017

SINGPOST'S IMPENDING WRITEDOWN

TARGET PRICE: S$1.05 (SELL)

DOWNSIDE: 25%⬇





SingPost released its third-quarter results last Friday, with net profit for 9M FY16/17 falling 31.3% from S$143m to S$98.6m. The fall in net profit come despite a 22.8% rise in revenue, from S$833m to S$1,024m. In light of the falling profits, SingPost has declared an interim dividend of 0.5 cents, down from 1.5 cents in 3Q FY15/16.


Potential impairment of intangible assets


Due to the poor performance of TradeGlobal, an eCommerce firm based in the US which SingPost acquired, the Board of Singpost has cautioned that there is a significant risk of impairment to TradeGlobal's carrying value. Our view is that SingPost has overpaid for acquisitions over the past few years, including TradeGlobal, Jagged Peak and Couriers Please. TradeGlobal alone accounted for S$169m of goodwill, and as of 3Q FY16/17, SingPost's balance sheet contained S$604m of intangible assets.


Widening operating loss from eCommerce business 



Operating loss for SingPost's eCommerce segment continues to widen. For FY16/17, SingPost recorded an operating loss of 3.5m in Q1, 6.8m in Q2 and 8.4m in Q3. With regard to its eCommerce segment, SingPost noted that:

"TradeGlobal has not achieved the underlying profit assumptions of the business plan which supported the investment. TradeGlobal incurred a significant loss instead of a projected profit in the third quarter peak season. It is expected to make a loss for the full year." 

Evidently, the eCommerce segment has not met the targets that SingPost projected when the investment was made. The operating loss from the eCommerce segment continues to weigh on net profit.



Our valuation


We forecast the full-year earnings per share to be around 5.3 to 5.6 cents. SingPost has reviewed its dividend policy, aiming to pay out 60 to 80% of their net profit. Thus, we forecast a full-year dividend of 3.7 to 4.2 cents. Based on a P/E ratio of 19, our target price would be S$1.05, with a dividend yield of around 4%. 



Factors that may affect our view


  • SingPost's logistic business may still experience growth, especially if it works more closely with Alibaba Group, which currently owns a 14.4% stake in SingPost. However, SingPost has noted that the profit margins in the logistic segment is lower than that of mail. The logistic industry in Singapore also very competitive, with rivals such as DHL, UPS and local start-up Ninja Van.




Disclaimer

This research report is based on information obtained from sources believed to be reliable. AlpacaInvestments does not make any representation or warranty as to its accuracy, completeness or correctness. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, you should not act on it without independently verifying its contents. This publication has not been reviewed or authorized by any regulatory authority in Singapore or elsewhere. AlpacaInvestments accepts no liability arising whether directly or indirectly as a result of the recipient acting on such information or opinion or estimate. This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. AlpacaInvestments may from time to time have interests in the securities mentioned in this report, and our opinions expressed in this report are subject to change without notice. This report is intended for information purposes only, and should not be regarded as a substitute to your own judgement. 



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