CGS-CIMB Research analyst Ong Khang Chuen is keeping his “hold” call on Singapore Post (SingPost) after the group announced that it will be acquiring more shares in its 51%-owned subsidiary Freight Management Holdings (FMH).
Ong has also kept his target price unchanged at 55 cents.
In his report on Jan 11, Ong says the acquisition is “positive” as it ties in with SingPost’s strategy of transforming into a global logistics enterprise, especially in Australia. SingPost has established a strong presence in the country after years of investments, the analyst notes.
“Without assuming further earnings growth for FMH from its last set of financials, we estimate the transaction to generate [around] 8% operating profit accretion for SingPost’s FY2024,” Ong writes. SingPost’s net gearing is also expected to remain low at 14% following the acquisition.
“The pandemic years have supercharged FMH’s growth, aiding it to record three-year revenue/operating profit compound annual growth rates (CAGRs) of 28%/50%,” continues the analyst.
“SingPost notes that its customer base remained sticky post-pandemic, and believes that at current scale, FMH has reached a tipping point, which should enable continued positive growth momentum,” he adds.
See also: SingPost acquires additional 37% total stake in Freight Management Holdings for A$175.4 mil
With a super-majority stake in FMH following the acquisition, SingPost indicated that it plans to accelerate its plans of reaping operating and cost synergies across its various Australian business lines. It also seeks to potentially quicken its pace of investments through FMH to drive growth.
Overall, Ong thinks that the worst could be over for the group although the pace of recovery will remain bumpy given the current headwinds such as weakness in domestic post and parcel volumes and easing freight rates.
To him, upside risks for SingPost include a faster pace of reopening from China, thereby enabling stronger margin recovery for the group’s international post and parcel business. On the other hand, downside risks include prolonged volume weakness on the domestic front.
As at 11.23am, shares in SingPost are trading 1 cent higher or 1.92% up at 53 cents.
