“Despite the 9.6% y-o-y increase in topline on the back of higher international mail and ecommerce logistics revenue, its 40.0% y-o-y profitability decline stemmed from higher international conveyance and freight costs as a result of Covid-19 disruption,” notes Ngoh.
She also expects near-term margin pressure from the company’s Post and Parcel segments to continue amid limited visibility on the aviation sector to recover to post-Covid-19 levels soon.
On that, Ngoh has lowered her target price on the counter to 70 cents from 77 cents.
She has also slashed her earnings per share (EPS) estimates for FY2021-2023F by 4.1 – 12.1% to “reflect higher conveyance costs and slower normalisation of the aviation industry”.
“Upside risks for our ‘hold’ rating include its medium term initiatives for the smart letter box, optimisation of property portfolio and more synergistic M&As. Downside risks are higher terminal dues and intensifying competition,” she says.
Similarly, OCBC Investment Research analyst Chu Peng has rated SingPost at “hold” with a lower fair value estimate of 71 cents from 75 cents previously.
“Moving ahead, we expect margins to remain under pressure due to higher conveyance costs which has surged about 2 times and SingPost may be unable to pass the costs to its customers,” says Chu.
Like CGS-CIMB’s Ngoh, SingPost’s 1HFY2020/2021 results missed Chu’s expectations on higher operating costs due to the disruptions brought about by Covid-19.
However, Chu views SingPost’s acquisition of a 38% equity interest in Freight Management Holdings as a bright spot.
For more stories about where the money flows, click here for our Capital section
“We believe that the acquisition will enhance SingPost’s foothold in Australia and capture the growing eCommerce demand,” she says.
To this end, Chu has identified several potential catalysts to SingPost’s share price, including the smooth execution of its integration plans, accretive acquisitions in the region at “reasonable valuation multiples”, significant volume increase in logistics and injection of property assets into a REIT”.
Downside risks, for her, are heightened competition in logistics and mail, macroeconomic deterioration and acquisition and integration risks.
DBS Group Research analysts Sachin Mittal and Lim Rui Wen have maintained their “fully valued” rating on SingPost with a lower target price of 60 cents from 64 cents previously, as they estimate that the company will take at least 12 to 18 months to fully recover from the Covid-19 impact.
“Passenger flights at Changi airport used for delivering international mail may not recover to their full strength over the next 12-18 months. This might lead to higher costs for SingPost due to the need to route those packages via sub-optimal routes,” they say.
Mittal and Lim also note that international mail growth may slowly recover in 2HFY2020/2021 on the resumption of economic activities, but the company may be held back by “intense competition and expansion of the tax net on cross-border e-commerce deliveries”.
“Key catalysts include stabilisation of post and parcel operating profit and growing Australia business led by recent acquisition in Australia,” they add. “Impact of higher terminal dues (increase in postage rates of international small packets unable to negate rise in terminal dues); higher-than-expected operational investments in domestic mail network.”
As at 4.44pm, shares in SingPost are trading 0.5 cent higher or 0.7% up at 69 cents.
See also: SingPost acquires 38% stake in Australian freight company for $84.1 mil
