FY22 Results Preview: Positive Signs Leading To A Gradual Recovery
We expect SPOST’s FY22 revenue and PATMI to post strong yoy growths, coming off a
low base in FY21. The post & parcel segment is expected to recover gradually, driven by
e-commerce and the reopening of international borders. The logistics segment
continues to benefit from elevated sea freight rates and the property segment from
relaxed COVID-19 measures. We opine that SPOST remains attractive at current price
levels. Maintain BUY with a higher target price of S$0.86 (previously S$0.78).
WHAT’S NEW
• Full reopening of Singapore’s international airways. Starting 26 Apr 22, all fully-vaccinated
travellers are able to enter Singapore quarantine-free, without the need for a pre-departure
COVID-19 test. Under the new Vaccinated Travel Framework (VTF), Singapore’s government
has also removed the quota on the number of daily arrivals and the approval process for all
travellers. With these measures in place, Singapore’s government targets to restore air travel to
50% of pre-pandemic levels by end-22.
• Relaxation of domestic social distancing measures. As Singapore transitions to endemic
living, the government has further eased its social distancing measures. Starting 26 Apr 22,
there will no longer be a cap on group sizes, no safe-distancing is required among
individuals, MICE events and sporting events can restart, mask-wearing will be optional
outdoors and all employees are allowed to return to the office. Tourist arrivals, footfall in retail
malls and physical occupancy of offices are expected to improve as social mobility increases
from relaxed social measures.
• Improving supply-demand imbalance. Monthly statistics from Changi Airport have shown
that the number of commercial aircraft movements has improved since Singapore reopened its
international borders, with Feb 22 and Mar 22 figures up ~62% yoy respectively. Although this
is still at 35-40% of pre-pandemic levels, it is expected to improve to 50% by end-22. With
increased cargo capacity and lower mail tonnage, air freight costs are set to drop, reducing
volume-related costs for international postal companies such as Singapore Post (SPOST).
• Earnings recovery underway. For FY22, we expect revenue and core PATMI to grow by
5.5% yoy and 29.8% yoy respectively, boosted by strong outperformance from the logistics
segment along with a full recovery from the property segment. The post & parcel segment,
dragged by elevated air freight rates in FY22, is expected to post a yoy decline as volumes
and revenue for International Post & Parcel (IPP) drop.
• Domestic post & parcel: Earnings expected to rebound. Growth in e-commerce revenue
has already offset letter mail decline for the past five quarters, and we expect this trend to
continue moving forward. Excluding the rebates from Jobs Support Scheme in 1HFY21,
1HFY22 overall post & parcel operating profit was stable on a yoy basis. Since the IPP
segment has been operating at a breakeven level since the COVID-19 pandemic started,
this implies that growth in domestic e-commerce operating profit is starting to offset the
decline in operating profit from domestic letter and mail. We opine that as e-commerce
becomes a secular trend, rising profit from the domestic e-commerce is expected to help
boost post & parcel overall earnings in FY23 and beyond.
• IPP: Gradual recovery in sight. Through channel checks, current air conveyance costs for
SPOST have come down to 170-175% of pre-COVID-19 levels. This is similar to the global
Drewry East West Air Freight Price Index (DAF PI Index) which has started to moderate with
the resumption of international air travel in several countries. Additional freight capacity from
the new VTF would help soften air conveyance costs further but we reckon it would be a
gradual decline over 2-3 quarters instead of a sharp decline. This is due to Changi Airport
having to rehire due to reduced manpower and current travel capacity only being at 35-40%
of pre-COVID-19 levels.
• Air freight costs to soften. As air freight costs make up 75-80% of volume-related
expenses and 40-50% of total operating costs, SPOST has been operating the IPP segment
at a breakeven level. SPOST utilises the bellyhold of planes entering and leaving Singapore
for its IPP segment. We reckon that the group would start ramping up its IPP volume once
air freight costs reach a commercially optimum level, which might be sometime in 2HFY23.
With Changi Airport’s status as a regional air hub, along with lower air freight costs, this
would help boost IPP revenue when air travel recovers closer to pre-COVID-19 levels, as
about 90% of SPOST’s IPP revenue comes from transshipment revenue.
• For FY22, we expect post & parcel segmental revenue and operating profit to drop by
11.0% yoy and 42.3% yoy respectively, dragged by lower IPP revenue and decreasing
domestic letter and mail. The larger percentage drop in operating profit is due to both the
IPP and domestic letter and mail segments having greater operating margins as compared
with domestic e-commerce.
• Property segment: Back to pre-COVID-19 levels. Occupancy rates at SingPost Centre
remain high with its retail segment having full occupancy and its office space seeing 95.7%
occupancy. Management has noted that they are in the process of securing new tenants for
their offices but may face some downward pressure on rents as firms start to scale down.
For FY22, we expect segmental revenue and operating profit to reach pre-COVID-19 levels,
increasing by 2.0% yoy and 9.9% yoy respectively, backed by higher footfall and tenant
sales as social distancing measures ease off.
Logistics segment: Supernormal earnings. In spite of the Omicron outbreak in 3QFY22,
consignment volumes grew 7% yoy, contributed by new volume from FMH. CouriersPlease
performed resiliently in spite of work disturbances with volumes remaining stable yoy.
Famous Holdings continues to benefit from higher volumes and elevated sea freight rates
amid ongoing supply chain disruption but we expect sea freight rates to soften slightly in
FY23. We expect FY22 logistical segmental revenue and operating profit to increase by
25.7% yoy and 266.5% yoy respectively.
EARNINGS REVISION/RISK
• Increase FY22-24 earnings slightly by 1-3%. This is to account for the earlier reopening of
Singapore’s international borders than previously anticipated. Our core PATMI forecasts for
FY22-24 are S$78.0m (S$76.4m previously), S$94.8m (S$93.8m previously) and S$116.8m
(S$113.7m previously) respectively.
VALUATION/RECOMMENDATION
• Maintain BUY with a higher SOTP-based target price of S$0.86 (previously S$0.78), as
we roll over our multiples to FY23 forecasts. We value: a) the mail business at 10.0x FY23F
PE (12x FY22F PE previously), b) logistics business at 7.0x FY23F EV/EBITDA (8.0x FY22F
EV/EBITDA previously), both in line with peers’ average, and c) property at a cap rate of 5%.
• We reckon that SPOST is on the verge of a strong recovery, driven by the growth in ecommerce. Once air freight rates reach an optimal level sometime in 2HFY23, we expect
SPOST to ramp up IPP volumes, which will help to boost overall revenue. Therefore, with an
expected inflection point approaching and trading at slightly above -1SD to its five-year
mean PE, we opine that SPOST has significant potential upside at current attractive price
levels.
SHARE PRICE CATALYST
• Pick-up in air travel volume, lower-than-expected decline in domestic postal M&As.