Steady recovery
? SPOST’s 3Q EBIT of S$38m (+26% qoq, +46% yoy) was a slight beat, driven by strong freight forwarding and e-commerce volumes.
? Post and parcel segment could see further margin recovery ahead with continued growth in e-commerce volumes and Singapore borders reopening.
? SPOST is also stepping up its investments in Australia to build it into its second home market. Reiterate Add. Our TP remains at S$0.90.
Good improvements across 3QFY3/22
SPOST posted a strong set of numbers, with 3QFY22 operating profit of S$38m (+20% qoq, +46% yoy). 9MFY22 operating profit of S$89m (+35% yoy) made up 83%/85% of our/Bloomberg consensus forecasts, slightly above expectations, as 4Q is typically a seasonally weak quarter. Profit improvement mainly came from 1) strong performance for freight forwarding business, 2) growth in domestic e-commerce volumes, and 3) 1-month contribution from newly consolidated financials of Freight Management Holdings (FMH, a 4PL service company in Australia).
Riding on e-commerce growth
We believe that SPOST’s post and parcel segment can see further recovery in FY23F. Domestically, e-commerce volumes grew to 15.5m in 3QFY22 (+23% qoq, +50% yoy) helped by year-end peak shopping season and one-off nationwide distribution projects such as for ART kits and mouth gargles; we expect continued growth riding on structural increase of e-commerce penetration. On the international front, international post and parcel (IPP) business has already seen some profit recovery in 3QFY22, and we expect further recovery as flight capacity out of Changi Airport recovers more significantly. That will help alleviate conveyance costs, and aid margin recovery for the IPP business.
Further investments in logistics to grow to the next level
SPOST’s freight forwarding business continued its strong performance in 3QFY22, benefiting from higher volume and sea freight rates. At the same time, SPOST is stepping up its investments in Australia with the intention of building it into its second home market. Aside from the stake increase in FMH, SPOST will also continue to build scale and capabilities, as well as drive synergies between its existing Australian businesses to drive further growth in the region.
Reiterate Add with a TP of S$0.90
Reiterate Add; we expect earnings recovery as more flights through Changi gradually resume. Valuation is attractive as SPOST is trading at 1.3 s.d below mean. We lift FY22- 24F EPS by 1.8-2.5% on higher e-commerce volume assumptions. Our TP is kept at S$0.90, based on 18.8x FY23F P/E (0.5 s.d. below historical average). Potential re-rating catalysts: earnings-accretive M&A and greater visibility on border opening. Monetisation of its real estate portfolio (c.S$1bn) could also be a longer-term catalyst. Downside risks include intensifying competition within domestic e-commerce last mile delivery space.