Singapore Post (SPOST SP) BUY
1HFY16 results slightly below but look forward to FY17F. Still our preferred e-commerce play.
Analyst: Andrew Chow Tel: (65) 6590 6633
Company
|
Share price(S$)
|
Recommendation
|
Our Target Price(S$)
|
Within Expectation (Y/N)
|
1HFY16 EPS (S cents)
| 1HFY16 yoy |
Highlights of Results
|
SPOST
|
1.895
|
BUY
|
2.19
|
N
| 4.28 | +20.2% |
See comments below
|
1HFY16 results highlights
- 1HFY16 slightly below. Excluding exceptional items, underlying net profits grew 1.4% yoy to S$77.8m. This accounts for 45% of our full year forecast. Spost enjoyed a net gain of S$34m from the disposal of Novation Solutions and DataPost.
- Costs remain elevated as company invests for the future. Whilst the group's turnover growth of 20% yoy was within expectations, underlying growth was lackluster due to a 2.8ppt decline in underlying net profit margin to 15.0%. This is because costs remain elevated due to the inclusions of recently acquired investments as well as costs pressure in segments such as labor (higher wage and additional headcount for expansion). Compounding the situation is a 7% yoy decline in rental/property related income in 1HFY16 due to the impending redevelopment of Singapore Post Centre.
- Delivering on dividends. A 2QFY16 dividend of 1.5cents/share (+20% yoy vs 2QFY15 DPS of 1.25cents/share) was declared. This is within expectations and we think the group is on track to deliver a full year DPS of 7.0cents/share.
- Maintaining earnings pending analyst briefing on Tuesday. We maintain our earnings estimates but see a slight downwside in FY16F (year to Mar) as costs are likely to slightly exceed our initial estimates.
- Recommendation. Though 1HFY16 is slightly below estimates, we believe investors should look beyond the quarterly fluctuations in earnings over the next few quarters and focus on the solid medium term outlook as SPOST's transformation continues. Cashflow generation remains strong but we note that its cash balance is expected to trend down as management continues to invest in medium term accretive assets. Maintain our DCF-based target price of S$2.19/share, pending an analyst briefing tomorrow. At the latest closing price, its FY16F dividend yield is 3.7%.
Regards
Andrew Chow, CFA
UOB Kay Hian Research
DID: +65-6590 6633
Email: andrewchow@uobkayhian.com
This transmission has been issued by a member of the UOB Kay Hian Group for the information of the addressee only and should not be reproduced and/or distributed to any other person. Each page attached hereto must be read in conjunction with any disclaimer which forms part of it. Unless otherwise stated, this transmission is neither an offer nor the solicitation of an offer to sell or purchase any investment. Its comments are based on information obtained from sources believed to be reliable but UOB Kay Hian Group makes no representations and accepts no responsibility or liability as to its completeness or accuracy.
