How will SingPost’s share price perform as group lowers dividends?
IG analysts see potential upsides for the postal service group’s share value, based on a technical analysis of the stock.
Singapore Post (SingPost) has reported a net profit of S$7.2 million for the fourth quarter ended 31 March 2020, reversing from a net loss of S$75.1 million from the previous year.
The national postal service group said this was due to the absence of impairment charges in exceptional items incurred last financial year. Q4 revenue declined 2.7% to S$312.2 million.
Group revenue for the overall financial year decreased by 0.7% to S$1.31 billion, as all segments recorded a slight decline in revenue. Net profit attributable to equity holders rose significantly to S$91.1 million, mainly due to the absence of one-off impairment charges of the US businesses incurred last year.
The US businesses in question are SingPost’s US e-commerce subsidiaries Jagged Peak and Trade Global. It was earlier announced on 19 September 2019 that both entities had filed for voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code.
SingPost has since deconsolidated their financials from the rest of the group, and no longer recognises profit or loss from the two companies.
In relation to financial year ended 31 March 2020, the Board of Directors has recommended a final dividend of S0.012 per ordinary share, down from the S$0.020 paid out a year ago. This would bring the annual dividend for the financial year to S$0.027 per share (versus S$0.035 a year ago), representing a pay-out ratio of 60% of underlying net profit.
SingPost share price: technical analysis
SingPost’s share price traded sideways around the S$0.74 mark following the release of its Q4 and FY 2019/2020 earnings.
Year-to-date, the group’s share price is down 27%. Since the global stock market crash of 23 March – which took SingPost’s market value down to S$0.58 a share, stocks have rebounded 27.6%.
As IG Asia market strategist Pan Jingyi explains, SingPost had established (and remains in) an uptrend since reversing in late-March, underpinned by healthy trading volume.
‘Prices can be seen sustaining the uptrend channel, taking out the 50-day moving average easily in the month and eyeing the 50% Fibonacci retracement level.
‘With prices yet to head into overbought territory and the healthy volume keeping up, look to a break that will open up the room towards the 61.8% Fibonacci retracement that also coincides with the 61.8% level that may pose stronger resistance for prices,’ Pan wrote.
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Business performance by segment
In the Post and Parcel segment, revenue held steady for the full year. International Post and Parcel posted record revenue of more than S$500 million on the back of higher cross-border e-commerce-related activity, which was offset by an accelerated decline in letter mail volume domestically.
Profit on operating activities for the segment dropped 23.2% to S$127.5 million.
The company said that these trends were impacted by Covid-19 disruptions in Q4, with Post and Parcel revenue declining by 5.7% in the quarter.
In the Logistics segment, revenue dropped slightly by 0.7% for the full financial year. Losses from operating activities for the year was S$5.6 million, compared to losses of S$7.6 million recorded last year.
Finally, revenue and profit on operating activities for the Property segment, comprising commercial property rental and self-storage business, remained flat for the full year.
SingPost CEO: ‘we will press on with our longer-term strategy’
While the group says it continues to face headwinds in its postal business with declining letter mail volumes, there are also opportunities arising from the strong growth of e-commerce logistics, especially in Asia Pacific.
Paul Coutts, SingPost Group CEO, said: ‘Since the start of 2020, Covid-19 has posed significant challenges to the operating environment for businesses across all industries, with major economies warning of job cuts and recession in the coming year. Despite the strong demand for logistics and delivery services, SingPost will not be spared from the economic fallout if Covid-19 persists, so we are focused on ensuring our cost base remains sustainable.
‘In spite of the difficult operating environment, we will press on with our longer-term strategy in order to stay relevant and to prepare ourselves to capitalise on the opportunities that will emerge from this crisis,’ Coutts added.
Part of this long-term strategy is a fundamental review of its postal operations. A new Smart Urban Logistics initiative aims to create a sustainable national mail delivery system. In the process, the group hopes to improve service standards, as well as drive long-term business performance and value creation.
The review of the postal operations as part of the Smart Urban Logistics project also covers the entire spectrum from back-end processing to front-end deliveries of both letters and parcels. Besides enabling the Group to be more operationally efficient, the move will subsequently free up industrial space for the Group’s Property portfolio for more efficient gains.
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