CGS-CIMB analyst Ngoh Yi Sin is maintaining her “add” call with the same target price of 77 cents on Singapore Post (SingPost) following the company’s acquisition of a 38% stake in Australian 4th party logistics service company Freight Management Holdings (FMH) for A$85.0 million ($84.1 million) on Oct 16.
See: SingPost acquires 38% stake in Australian freight company for $84.1 mil
While Ngoh sees the acquisition as “accretive but slightly pricey”, she notes that it will allow SingPost to further capitalise on the growing e-commerce market in Australia.
As it is, SingPost’s courier, express and parcel (CEP) market is estimated to be worth A$10 billion in gross merchandise value (GMV) today, according to the company.
“The group has a significant presence in Australia for the last five years, which is the largest revenue contributor outside of Singapore (FY2020 revenue of $174.2 million),” says Ngoh, who adds that re-rating catalysts include the faster lifting of international travel restrictions and successful transformation from its Future of Post initiative.
She has also identified downside risks to the stock such as elevated terminal dues and air freight rates.
Similarly, DBS Group Research analysts Sachin Mittal and Lim Rui Wen have kept their “fully valued” recommendation on SingPost with an unchanged target price of 64 cents.
While the acquisition adds scale to SingPost’s logistics business in Australia, Mittal and Lim has maintained their call due to the structural decline in its high-margin domestic mail revenue and slow growth in international mail.
“Operating profit from international mail would be unable to mitigate the drop from domestic mail,” they say.
“Growth may only slowly recover in 2HFY2021F as economic activities resume but held back by intense competition and expansion of the tax net on cross-border e-commerce deliveries.”
As at 4.25pm, shares in SingPost are trading 0.5 cent higher or 0.7% up at 69 cents.
