Excerpts from UOB KayHian report

Singapore Post Limited (SGX: S08)

• We expect Singapore Post’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)

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.

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.

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.

Valuation/Recommnedation

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%.

You can find the full report here