3Q22 beats street due to high Sea Freight rates and one-off projects
- 3Q22 operating profit of S$38m (+46% y-o-y, +20% q-o-q) exceeded our estimate of S$29m
- Excluding one-offs, we raise FY22F/23F underlying earnings by 3%/2% to S$76m/S$87m.
- Maintain HOLD with revised TP of S$0.70; growth of its operating profit across its core Post & Parcel business is the key to the stock.
3Q22 operating profit of S$38m (+46% y-o-y, +20% q-o-q) exceeded our estimate of S$29m due to two key reasons (i) The freight forwarding business under Famous Holdings continued to performed exceptionally well due to higher sea freight rates caused by global supply chain disruptions (ii) Domestic eCommerce logistics volume rose 50% y-o-y benefitting from one-off nationwide distribution projects such as for ART kits and mouth gargles, which have been discontinued now.
Meanwhile, consignment volume in Australia grew 7% y-o-y, along the expected lines, due to the consolidation of recently acquired FMH’s volume for December 2021 on top of a stable revenue for CouriersPlease (CP).
Source: Company
9M22 operating profit of S$89m is up 35% vs our estimate of S$80m. For example, the spot rate for a 40-foot container to the United States from Asia topped US$20,000 last year, including surcharges and premiums, up almost 4-5x from a few years ago. Street is dividend whether the rates can sustain in 2022 or not due to lack of clarity regarding the timing of the entry of new vessels. On the other hand, its core Post & Parcel business’ recovery momentum is rather slow as International Post & Parcel’s volume is still declining (as shown in the table above) due to slow opening of passenger flights at Changi Airport. Also, one-off gains from ART kits distribution are likely to be absent from the Domestic Post & Parcels segment going forward.
Excluding one-offs, we raise FY22F/23F group underlying earnings by 3%/2% to S$76m/S$87m. While the company has not disclosed, we estimate S$5-6m gain from one-off projects in FY22F. We raise our FY22F/23F earnings mainly due to our assumption that Sea Freight rates will remain elevated over the next 12-15 months. We project Logistics operating profit will rise from S$11m in FY21 to S$33m in FY22F and then rise to S$36m in FY23F. We project Post & Parcel operating profit of S$35m in FY22F (from S$43.5 in FY21) excluding one-off projects in Singapore, rising to S$50m in FY23F due to potential recovery in international segment.
Post & Parcel recovery will take time but Logistics to continue to benefit from higher Sea-freight rates
Operating Profit | FY20A | FY21A | FY22F | FY23F | FY24F |
Post & Parcel | 127.4 | 43.5 | 34.7 | 50.3 | 55.7 |
Logistics | -5.6 | 11.3 | 33.1 | 36.4 | 31.8 |
eCommerce | |||||
Property | 53.7 | 50.0 | 53.0 | 54.1 | 54.9 |
Others | -31.9 | -25.4 | -10.0 | -14.0 | -14.4 |
Operating profit | 143.6 | 79.3 | 110.7 | 126.7 | 128.0 |
Source: DBS Bank
Maintain HOLD with revised TP of S$0.70 (prev S$0.69). We use discounted cash flow valuation (WACC 7%, terminal growth 2%) to derive our TP. The stock is currently trading at a reasonable 17x FY22F PER with earnings growth partly reliant on Sea Freights rates. Growth of its operating profit across its core Post & Parcel business is the key to the stock in our view.