SINGAPORE (July 26): DBS Vickers Securities is maintaining a “hold” recommendation on Singapore Post (SingPost) with a target price of $1.26 on the belief that the market is currently pricing in better recovery for both the group’s logistics and e-commerce segments compared to the research house’s estimates.
In a Wednesday report, analyst Sachin Mittal says he expects a slower turnaround with the counter remaining range-bound in the near-term, despite the group having bought back over 3 million shares in the last two months.
In his view, the counter is not cheap at its current valuation of 25 times FY18F PE.
“SingPost’s new CEO, Mr Paul Coutts, has reiterated at SingPost’s AGM that e-commerce is still SingPost’s strategic intent. To justify >10% upside from the current price, SPOST needs to show a sharp recovery in logistics and e-commerce’s operating profit to $42 million by FY19F vs +$31 million/–$10 million in FY16/17A,” says Mittal, who is looking forward to the new CEO’s business strategy update.
While the analyst acknowledges that a turnaround plan is in place for the group’s loss-making unit TradeGlobal, he is in the view that a full recovery is likely to only kick in around FY19F.
Stiff competition faced by SingPost’s logistics segment is also likely to put pressure on its margins, he adds, although any turnaround from the e-commerce segment in the near term, as well as the potential divestment of Singapore Post Centre (SPC) in the medium term, would serve as catalysts.
Although Mittal believes the e-commerce logistics segment will continue facing challenges in its operating environment, he thinks SPC mall rentals are likely to supplement the group’s earnings in FY18/19 with an estimated generated revenue of about $17 million per annum.
Meanwhile, the analyst sees the mail segment’s profitability to remain relatively stagnant as its margins have “yet to find its bottom”.
“The e-commerce segment is facing losses following the acquisitions of Jagged Peak and Trade Global. A further escalation in losses at these businesses could depress SingPost’s bottomline in the medium term,” says Mittal.
As at 9.46am, shares in SingPost are down by 1 cent at $1.32.
