Singapore Post Ltd
SGX:S08
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
0.38
0.565
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SGD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Singapore Post Ltd
You don't have any saved screeners yet
Ladies and gentlemen, thank you for holding. We are now ready for the briefing.
I shall now hand over to the management of SingPost to begin the briefing.
Good morning. Welcome to SingPost Results Briefing for the Second Quarter and Half Year of FY '18/’19. This is Jason from Investor Relations. With me today is our group CEO, Mr. Paul Coutts; as well as our group CFO, Mr. Richard Lai joining us for the first time.
I will now hand over the session to Richard for an overview of our results. Richard, please.
Thank you, Jason. Good morning, and welcome to our results briefing. Let me first share an overview of our Q2 results. Group revenue was up 2.2% to $368.7 million. We recorded a strong growth in profit from operating activities, up 33.5% year-on-year to $40 million. Due to negative contribution from associates, with 4PX continuing to invest for growth, underlying net profit rose a little lower by 0.4% to $28.1 million. Having said that, we have just announced that 4PX has completed the issuance of additional shares to Cainiao. With that, our stake will be diluted to 19.75%, and we will cease to equity account for 4PX as an associate going forward. The board has declared an interim Q2 dividend of 0.5% (sic) [ $0.005 ] per share, same as last year. This brings total dividends for the year to $0.01 so far.
We shall now move on to a more detailed analysis of the P&L statement. The revenue growth of 2.2% was mainly due to higher contribution from international mail and property. Growth in profit on operating activities was driven by higher contribution from the Post and Parcel, Logistics and Property segments. Associates and JV recorded a loss of $3.6 million, due largely to 4PX which continues to invest to handle the growth in cross-border eCommerce volumes for Alibaba.
In Q2, the group recorded an exceptional loss of $2.9 million, due mainly to fair value loss on warrants from associated company compared to a fair value gain of $0.9 million last year. Consequently, reported net profit declined 12.9%. Notwithstanding the exceptional items, we managed to maintain the underlying net profit. Operating expenses declined 0.4% in Q2, demonstrating the success of our cost management initiatives. Excluding volume-related expenses, operating expenses would have declined 7.4%. Volume-related expenses remained the largest cost component for the group and rose 4.9% in Q2 in line with the higher volumes. Labor and related expenses declined by 6.2% as our productivity enhancement and cost management initiatives led to lower contracted labor services as well as lower staff costs. Administrative, selling and other expenses declined 11.1% as higher property-related expenses relating to the new retail mall, offset by lower professional fees.
Let me share some operating highlights for the quarter. We have made significant progress in winning in our home market. Parcel sorting volumes at the logistic hub rose 38% year-on-year to 21,000 parcels daily. Utilization was 21% compared to 15% last year. With respect to extracting full value from our investments, Quantium Solutions’ losses narrowed significantly compared to last year. As announced, 4PX has completed the issuance of new shares to Cainiao. This will deepen the business integration between 4PX, Alibaba and SingPost for cross-border eCommerce volumes. Under our drive to cost leadership initiative, we have successfully reduced operating expenses by about 4% (sic) [ 0.4% ] for the quarter even as revenue rose 2.2%.
eCommerce-related revenues now make up 51.3% of the group revenue. For Q2, eCommerce-related revenue rose 2.2% year-on-year, driven by higher eCommerce deliveries on our Postal and Parcels network. This was partially offset by revenue decline in our eCommerce business segment. This chart shows the impact of various segments on underlying net profit. Profit on operating activities from Logistics, Property and Post and Parcel segments rose. However, these were offset by negative contributions from the eCommerce segment as well as from Associates and JV. Consequently, underlying net profit rose slightly by 0.4% in quarter 2.
Let me now move on to the cash flow and balance sheet. For the half year ended 30th September 2018, operating cash flow before working capital changes rose 11% to $105.1 million from $94.7 million last year. Working capital movement was negative $76 million in the first half of the year, due to the timing of outpayments in respect of international mail terminal dues. As a result, net cash flow from operating activities for the half year ended 30th September 2018 declined to $11.8 million from $50.5 million last year. Capital expenditure declined to $18.8 million for the quarter compared to $38.9 million last year due to the completion of SingPost Centre retail mall redevelopment. Consequently, free cash flow was negative $7 million due largely to timing difference in outpayments. Since the close of the period ended 30th September 2018, the group has received payments amounting to about $50 million, which will be recorded in the cash flow statement for the period ending 31st December 2018.
We now move to the balance sheet and financial indicators. Cash and cash equivalent stood at $285.2 million as at 30th September 2018. Total borrowings rose $293.7 million as at 30th September 2018, as the group switched from the -- an intercompany loan for foreign subsidiary to an external loan for better matching for the -- of currency. The group was in a net debt position of $8.5 million as at 30th September 2018, due largely to timing difference in receipt and collection of payments. EBITDA, excluding exceptional items, rose slightly to $100.8 million for first half of the year. Notwithstanding the increased debt, interest coverage ratio stands at 20.8x for the first half of the year compared to 17.4x last year.
We now move on to the segmental results. And for this, I will hand over to Jason.
The next slide provides an overview of the various segments contribution to group revenue and operating profit for the quarter. For operating revenue, the Post and Parcel segment remains the largest contributor, followed by Logistics and eCommerce segments. In terms of profit on operating activities, Post and Parcel is also the largest contributor at $42.1 million, followed by the Property segment at $13.3 million. The Logistics segment reported a positive contribution of $0.3 million for Q2 compared to a $9 million loss last year, which had a doubtful debt provision of $5.2 million. eCommerce segment losses widened to $11.2 million, due to challenges in the U.S. business.
Next, we will take a closer look at each of the segments. In Post and Parcel, revenue rose 1.6% in Q2 and 3.6% in H1, as higher international mail revenue from cross-border eCommerce deliveries helped offset the impact of lower domestic letter volumes. The group is starting to reap operating synergies from the ongoing integration of our last mile delivery capabilities in the Post and Parcel divisions. Profit on operating activities rose 5.1% in Q2 and 0.5% in Q1 (sic) [ H1 ]. This was driven by higher margins from our domestic last mile eCommerce-related deliveries.
In the Logistics segment, revenue rose slightly in Q2 driven by the freight forwarding business under Famous Holdings. This was offset by a revenue decline at Quantium Solutions, which lost some customers amid an ongoing review of unfavorable contracts to -- in order to improve profitability. For H1, Logistics revenue declined 1% due to lower revenue from Quantium Solutions. This segment registered profit on operating activities of $0.3 million in Q2 and $0.4 million in H1 compared to operating losses last year. This was largely due to a reduction in losses at Quantium Solutions.
In the eCommerce segment, revenue declined 0.5% in Q2 and 2.4% in H1. The U.S. businesses were impacted by pricing pressures due to competitive intensity, which also led to certain customer contracts being renewed at lower rates. This was exacerbated by an increase in costs due to ongoing initiatives to integrate TradeGlobal and Jagged Peak as well as investments in automation. As a result, operating losses rose to $11.2 million in Q2 and $20.5 million in H1. The group is executing on the business plan, and we remain focused on growing volumes and managing costs in the upcoming peak seasons.
Property segment revenue, which comprises commercial property rental and the self-storage business, rose 20.7% in Q2 and 26.5% in H1. This was due largely to the SingPost Centre retail mall, which reopened in October 2017. Committed occupancy for the mall improved to 99.1% as at 30th September, up from 96.7% as at 30th June. Boosted by rental income from the mall, profit on operating activities rose 54.1% in Q2 and 60.3% in H1. With that, we conclude our presentation. Thank you.
We are now ready for the Q&A session. Operator, please?
[Operator Instructions] Your first question comes from the line of Azita Nazrene from Macquarie.
So on the -- I did notice that your parcel sorting volume is up 38% year-on-year. However, for SP Parcels, the revenue is down 2.5%, could you kindly explain that?
Yes. So Azita, thanks for the question. I mean one of the things that we have talked about previously is that we are kind of moving away from talking about postal and parcel in Singapore and talking more about last mile delivery and last mile infrastructure and capability that we have in Singapore. And what that means is from a business perspective is that we are collaborating a lot more closely in terms of that parcels and postal division, which has previously been 2 separate business units. So we're bringing those closer together. And then one of the synergy benefits that we have gained from that is that we have actually injected a lot of that parcel volumes through into our postal business, and that's where you'll see in terms of domestic postal numbers, so we can see the decline slowing up which is also the reason -- part of the reason for that is the benefit that we are getting by injecting those parcels into our postal network.
Your next question comes from the line of Varun Ahuja from Crédit Suisse.
I just wanted to check on the international mail. It continues to be pretty weak compared to what we have seen last year, just want to hear management commentary what -- how should we think about this now? Obviously, this was supposed to be the growth and anything -- is this still related to the terminal dues structure or competition? So more clarity and reasons for the subdued performance? And how should we think about or the next 12 months, say, next year? I know you don't provide any guidance, but any color should the volume pick up or should remain at this level, that will be helpful. Number two, the Logistics business clearly has shown improvement in this year, but I'm just worried, is there anything that may lead to another -- that may lead to this business turning into losses again like what we have seen in the U.S. business? Is the trade war, anything that may be of concern that we should watch out for, for this Logistics segment for it to again start making losses? Or is this turnaround for real? Anything that worries you on this business that will be
[Audio Gap]