SINGAPORE (May 14): CGS-CIMB Research is keeping its “add” call on Singapore post (SingPost) with a higher target price of $1.59, as the stock is poised for an earnings recovery over FY19-FY21 and offers 2-3% dividend yield.
The group on May 11 recorded 4Q18 earnings of $23.9 million, compared to a loss of $65.2 million in 4Q17, brining FY18 earnings to $126.4 million, 278.4% higher than $33.4 million in FY17.
4Q18 revenue was $367.5 million, 13.5% higher than $325.8 million a year ago, on the back of growth from the Postal and Logistics segments.
The group also declared a final dividend of 2.0 cents per share.
See: SingPost back in the black in 4Q on higher revenue and income
In a Friday report, analyst Ngoh Yi Sin says, “Key positives this quarter were the absence of impairment, slower decline of domestic mail, improving ecommerce losses and logistics performance.”
In addition, committed occupancy at the SingPost centre retail mall increased to 95.6% during the quarter, which the analyst believes will make full-year rental contribution in FY19F.
Ngoh has observed some new norms for SingPost, including the recurrence of professional fees for consultancy services to drive cost leadership; lower postal OPM as the less profitable international mail outpaces domestic mail growth and comes under further pressure from terminal dues; volatile contribution from associates due to continual investments for growth; and disruption from new and existing competitors across all areas.
On the other hand, changes in terminal dues took a toll on the group’s postal OPM even as its international mail volume growth stayed resilient at over 30% y-o-y.
“With ongoing measures like the implementation of higher postal rates across all of its customers, enhanced bilateral cooperation with other countries and negotiation of line haul costs, we expect some margin relief in the coming quarters,” says Ngoh.
Quantium Solutions Hong Kong (QSI HK) remains an important transshipment route for the group, given its strategic role as a gateway to China, despite persistent competition in North Asia.
Apart from intensifying collaboration with Alibaba, management has since reviewed its key customer contracts, repositioned with Jagged Peak (JP) interface and is working on new products and customers.
Higher utilisation of the regional ecommerce logistics hub and exit of loss-making contracts also meant impairment was not necessary.
As at 12.42pm, shares in SingPost are trading 2 cents higher at $1.38, giving it a FY18 price-to-book value ratio of 1.76, with a dividend yield of 2.57%.
