DBS Group Research analysts Sachin Mittal and Lim Rui Wen have upgraded their call on Singapore Post (SingPost) to “hold” from “fully valued” in a Feb 5 report.
The upgrade comes after SingPost, on Feb 4, reported operating profit of $26 million for the 3QFY2020/2021, representing a 38% drop y-o-y and a 41% improvement q-o-q.
For Mittal and Lim, the figure came in above their expectations, which they attributed to tighter cost management. They also noted that some improvement was registered in the group’s logistics segment for the period.
Along with the upgrade, Mittal and Lim have upped their target price estimate to 74 cents from 60 cents previously.
The revised target price represents 18 times FY2022 price-to-earnings (P/E), which is near -1 standard deviation (SD) of its four-year average P/E multiple.
“We use discounted cash flow valuation (weighted average cost of capital or WACC 7%, terminal growth 3%) to derive our target price. We revise up our earnings forecast by ~3% to reflect better performance of Post and Parcel (P&P),” they write.
However, the analysts foresee that structural pressure on SingPost’s Post & Parcel segment may persist for 18-24 months, despite a sharp rebound in FY2022 due to recovery from Covid-19.
“This, coupled with an absence of $22-25 million in FY22F from the expiry of Job Support Scheme, may cap any upside to our FY2022 projections,” they say.
CGS-CIMB analyst Ong Khang Chuen has maintained “hold” on SingPost with an unchanged target price of 70 cents.
To Ong, SingPost’s 3QFY2020/2021 results came in below expectations at 68% of his forecasts.
“While strong growth in e-commerce volumes in Singapore and Australia helped support a turnaround in the domestic post and parcel and logistics segments, higher conveyance costs for the international post and parcel business continued to exert pressure on profit margins,” he says.
On the higher e-commerce volume reported in 3QFY2020/2021, Ong believes the benefits that the adoption of e-commerce brings to the group can support SingPost’s topline growth in its domestic post and parcel and logistics segments in FY2022.
That said, SingPost’s margins are likely to remain under pressure due to the surge in conveyance costs arising from disruption to international air freight out of Changi Airport.
“In view of the challenging leasing market due to Covid-19, we also factor in a low-single-digit negative rental reversion for SingPost’s property segment in FY2022,” he says.
To this end, Ong has also lowered his earnings per share (EPS) estimates for FY2021-FY2023 by 1.7%-8.3% to reflect lower international mail volumes and higher conveyance cost.
Shares in SingPost closed 0.5 cent higher or 0.7% up at 69.5 cents on Feb 5.
