Good 1H22 from a sharp-hike in Sea-freight rates
- 1H22 underlying profit of S$37.4 (+19% y-o-y, +30% q-o-q) was 12% above our estimates due to a sharp and unsustainable hike in sea-freight rates despite weakness elsewhere.
- Freight rates have eased slightly but might remain elevated over the next 6-months before normalizing. Raise our FY22F/23F earnings by 3% each to factor this and a recent acquisition.
- Maintain HOLD with unrevised TP of S$0.69
1H22 underlying profit of S$37.4 (+19% y-o-y, +30% q-o-q) was 12% above our estimates. This was mainly due to a sharp rise in operating profit of the Logistics segment to S$16.2m (+184% y-o-y, +180% h-o-h) as Sea Freight rates rose almost five times during the period benefitting Sea freight consolidator Famous Holdings which is a subsidiary of SingPost. Another key reason was a big drop in operating loss across the “Other” segment to S$3.1m vs S$13.2m loss in 1H20 due to the reversal of share options and lower performance bonus for the management. While sea freight rates have eased slightly over the last 1-month but are expected to remain elevated over the next 6-months before normalizing in the next 12-months or so.
Post & Parcel (P&P) segment has not recovered so far. Operating profit of P&P segment fell sharply to S$11.3m (-52% y-o-y, -44% h-o-h) mainly due to an absence of S$13m grant from job-support-scheme. SingPost has reduced its international mail business to sustain its profitability due to lack of enough passenger flights at Changi airport. On the domestic side, the drop in letters & Printed papers was offset by growth in e-commerce last mile deliveries.
Source: Company
SingPost has entered into a revised agreement to bring forward and increase its shareholding in Freight Management Holdings Pty Ltd (FMH) from 28% to 51%. FMH is a leading 4th party logistics (“4PL”) service company incorporated in Victoria, Australia in 2000. With this, FMH will become a subsidiary of SingPost. SingPost had earlier paid A$58.9m for its 28% stake in FMH and will be required to pay A$112.7m for the remaining 23% stake including a control premium. This implies A$490m valuation for FMH while it secured pre-tax profit of A$26m and an estimated net profit of ~A$18.3m in FY21. This translates to a reasonable Price to Earnings ratio of 27x for a company which has seen ~30% earning growth last year. This acquisition will be funded using internal cash flows. Most recently, SingPost secured S$85.1m from sale of General Storage company (Lock+store) which was generating meagre profits. FMH transaction will be immediately accretive to SingPost earnings upon completion. The agreement will also further provide SingPost a phased pathway to fully acquire FMH.
Maintain HOLD with unrevised TP of S$0.69 due to a slower than expected recovery in the Post & Parcel segment.