CGS-CIMB lowers SingPost's TP to 80 cents as it pushes back its recovery expectations

For the 1QFY2022, SingPost’s domestic post and parcel segment “continued to trade in challenging conditions” as traditional letter mail volumes fell further amid increasing costs.

Its international post and parcel business also continued to face “significant headwinds” from further supply chain disruptions. The ongoing Covid-19-induced lockdowns in Chinese cities added to the headwinds.

The company’s logistics segment was said to continue to perform well while its property segment remained stable.

While Ong expected the near-term challenges to affect the business recovery of SingPost’s international post and parcel segment, he was “negatively surprised by operating losses for the Post and Parcel segment in the 1QFY2022”.

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“We believe this implies weakness in [SingPost's] domestic post and parcel volumes (given the high fixed cost nature of the business),” he says.

As such, Ong has lowered his volume and margin assumptions for the domestic post and parcel segment. He has also cut his earnings per share (EPS) estimates for the FY2023 to FY2025 by 6.0% to 11.3%.

That said, Ong remains positive on the company, keeping his “add” recommendation, as he expects SingPost’s earnings to improve in the coming quarters driven by the recovery of its international post and parcel segment.

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The lower target price, he explains, follows the cuts to his EPS estimates, but still based on calendar year 2023’s P/E of 18.8x and 0.5 standard deviation below historical average.

To Ong, re-rating catalysts for the company include earnings-accretive mergers and acquisitions and newsflow on the reopening of China. The monetisation of its real estate portfolio ([valued at around] $1 billion) could also be a longer-term catalyst.

Downside risks include tougher competition in the last mile delivery space causing further weakness in domestic post and parcel volumes, he says.

As at 4.15pm, shares in SingPost are trading 1 cent lower or 1.55% down at 63.5 cents.