CGS-CIMB Research analyst Ong Khang Chuen has reiterated his “hold” call, while reducing his target price for Singapore Post (SingPost) S08 to 55 cents from 58 cents previously, as the pace of SingPost’s earnings recovery remains uncertain given the various macro headwinds.
The report dated May 11 comes following the announcement of the group’s FY2023 ended March 31 results, which saw earnings decline by 70.3% y-o-y to $24.7 million.
Underlying net profit came in at $32 million, representing a 60% decline y-o-y and 66% below Ong’s forecast. This was 30% higher h-o-h but 58% lower y-o-y at $18 million, which was also below Ong’s expectations, due to prolonged weakness in the post and parcel segment.
Meanwhile, the group’s logistics and property segments’ operating profit remained largely stable on a h-o-h basis. The group’s logistics segment is now the key revenue and profit contributor, as it works towards its transformation goals to be a global logistics enterprise.
With the full year consolidation of Australia-incorporated Freight Management Holdings (FMH), the logistics segment’s operating profit grew 91% y-o-y in FY2023 and accounted for 71% and 91% of SingPost’s group revenue and operating profit respectively.
Ong notes that the group has in October 2021 announced that it is accelerating its investment in Australia through an increased stake in FMH. As at end March, the group’s shareholding in FMH stands at 88% compared to 51% previously. “We believe this will enable SingPost to further drive revenue and cost synergies across its Australian entities, as well as quicken its M&A pace in the country,” says Ong.
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Australia is a key focus for SingPost, as evident from revenue contribution from Australia increased to 45%, compared to 26% in FY2022. Singapore’s revenue contribution has dropped from 18% in FY2022 to 14% in FY2023.
On the international post and parcel (IPP) front, Ong notes that a normalisation of supply chains globally has resulted in lower air and sea freight rates. This is both a boon and a bane for SingPost.
“Lower air freight can help reduce conveyance costs, aiding margin recovery for IPP business and allowing SingPost to reposition itself to capture a share of the structurally growing cross-border ecommerce business,” says Ong. “Meanwhile, lower ocean freight could impact SingPosts’ freight forwarding business, which had been one of the bright spots over the past two and a half years.”
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As for the group’s domestic post and parcel (DPP) segment, Ong expects this segment to also remain challenged with the decline in traditional letter mail and normalisation of e-commerce volume growth.
SingPost is reviewing the commercial sustainability of the domestic postal business with regulators, as part of its overall strategic review of its portfolio of businesses. This effort is a part of the group’s next step of transformation, where it aspires to enhance shareholder returns and ensure that the group is appropriately valued.
“We see potential for rationalisation of post office network and/or sorting centres in Singapore to lower fixed overheads, which could also open up opportunities for SingPost to monetise bulk of its investment properties worth $965 million,” says Ong, adding that this could also lead to continued divestments of non-core assets for capital recycling and potential strategic actions to address the structural non-profitability of the domestic post and parcel business.
SingPost is expecting its post and parcel segment to remain loss-making in FY2024, and has thus initiated a strategic review to enhance shareholder returns, a move Ong has described as a “notable development”.
Shares in SingPost closed 0.97% lower at 51 cents on May 12, also representing an all-time low.
