CGS-CIMB Research has upgraded Singapore Post (SingPost) from “hold” to “add” in anticipation of borders reopening, keeping its target price unchanged at 77 cents.
The upgrade comes after SingPost posted its 1QFY2021/2022 ended June quarterly business update on August 6, reporting EBIT of $21 million for the period.
See: SingPost reports slightly lower 1QFY21/22 EBIT of $21 mil as international post business continues to be impacted
In an August 9 research note, analyst Ong Khang Chuen describes the 1QFY2021/2022 update as a “non-event”. “Results were in line as we project stronger quarters ahead,” he says.
Ong is upbeat on SingPost’s prospects ahead as Singapore looks to reopen borders in the coming months as part of its roadmap to treating Covid-19 as endemic. The way he sees it, SingPost could benefit as higher commercial flight volumes in and out of Changi Airport could help lower conveyance costs, easing margin pressure for its international post and parcel segment.
“This should underpin SingPost’s earnings recovery as the post and parcel segment contributed >80% of its operating profit pre-Covid-19 and was the only segment severely hit by Covid-19, with operating profit declining 64% y-o-y in FY2021,” Ong points out.
Ong also believes that Australia will continue being a focus for the company. Noting that SingPost’s Australian operations saw revenue growth of 43% y-o-y in FY2021, making it its second largest market, he views SingPost could look for more inorganic growth opportunities in Australia.
In view of the impending tailwinds, Ong has upgraded SingPost to “add”. “We see SingPost as another proxy for the border reopening theme given its cheap valuation as it is trading at 1.1 standard deviation below mean,” he says.
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Shares in SingPost closed 2 cents or 3.18% higher at 65 cents on August 9.
