SINGAPORE (May 17): DBS Group Research says beleaguered Singapore Post (SingPost) will have to turn to its ecommerce logistics hub and Singapore Post Centre mall to drive earnings growth amid a challenging outlook for its ecommerce and logistics businesses.
“Apart from declines in high-margin domestic mail volumes, the underperformance in the quarter was also due to challenges in its logistics and freight businesses which led to weaker margins, and wider operating losses from TradeGlobal,” says DBS lead analyst Sachin Mittal.
On top of booking huge impairment write-offs amounting to $208.6 million, SingPost saw underlying net profit fall 24.7% y-o-y and 32.8% q-o-q in 4Q17 to $21.4 million.
(See: SingPost sinks into the red in 4Q after booking TradeGlobal impairment)
“We believe the share is likely to remain range bound in the near term as we look forward to SingPost’s new CEO coming onboard in June 2017,” says Mittal.
DBS is keeping its “hold” call on SingPost with a lower price target of $1.26, from $1.31 previously.
Amid the uncertainty in both SingPost’s ecommerce and logistics businesses, and structural changes in the postal segment, Mittal believes its ecommerce logistics hub and SPC mall will be key drivers in FY18F/19F.
According to Mittal, SingPost’s $182 million Regional eCommerce Logistics Hub has seen healthy utilisation for both its warehouse space and parcels sorting machine since its opening in Nov 2016.
(See: SingPost opens $182 mil ecommerce logistics hub)
“We note that SingPost has signed several new agreements for its order fulfillment business and expects more customers to come onboard in the next few quarters, which we believe is positive for SingPost’s earnings due to economies of scale,” says Mittal.
“We expect topline for logistics to continue seeing strong growth amid the challenging industry outlook,” he adds.
In addition, SingPost’s ecommerce logistics segment is likely to be bolstered by its continued deepening collaboration with Alibaba.
Meanwhile, Mittal believes rental income from the redeveloped SPC mall will supplement earnings in FY18/19.
“Redevelopment will double the retail floor space of the SPC Mall, which will be operational by mid-2017. Rental income from SPC Mall could be $8-10 million per annum in our view, which will bolster FY18 results,” he says.
As at 11.58am, shares of SingPost are trading half a cent lower at $1.30.
