OCBC Investment Research analyst Chu Peng sees a gradual recovery ahead for Singapore Post, following a proposed sale of a non-core asset and a resumption of its international post and parcel business.
In a Sept 7 note, Chu is recommending “buy” on Singapore Post (Singpost) with a raised fair value estimate of 78 cents from 74 cents previously.
On Sept 2, Singpost announced the proposed sale of General Storage Company and its subsidiaries (GSC) to Triforce Investment for $85.1 million.
The non-core asset contributed 4% of Singpost’s FY2021 net profit. Upon completion of the transaction, expected to take place on Oct 15, GSC will no longer be part of Singpost.
The proposed disposal is estimated to result in a gain of $6 million after transaction costs, notes Chu. “The proceeds would be redeployed for Singpost’s transformation initiatives and to reposition itself for long term, sustainable growth.”
Chu says Singpost’s performance has been weighed by declining volumes of letters and printed papers in Singapore, and higher conveyance costs for its international post and parcel business.
That said, the weak performance has been partially offset by strong e-commerce growth.
See: Singpost subsidiary disposes of GSC for $85.1 mil to Triforce Investments
For 1QFY2022, Singpost’s revenue fell 2% y-o-y to $353 million, while operating profit was down 2% y-o-y to $21 million.
Margins were under pressure due to low flight capacity at Changi Airport, adds Chu. “However, as Singapore plans to reopen its borders progressively, we expect margin pressures to ease as commercial flight volumes at Changi Airport recovers. This could benefit Singpost and support its earnings recovery in FY2022, together with strong demand from e-commerce.”
For FY2021, Singpost’s post and parcel business made up 52.9% of its revenue, while logistics contributed 44.1% and property made up 8.2%.
“Valuations are undemanding with Singpost’s forward price-to-earnings ratio (P/E) and price-to-book value (P/B) trading at 18.6 times and 0.99 times, near 1 standard deviation below its historical average.”
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As at 12.17pm, shares in Singpost are trading flat at 66 cents.
