SINGAPORE (Nov 17): DBS Vickers Securities is maintaining its “hold” call on Singapore Post (SIngPost) with a lower target price of $1.23 compared to $1.26 previously to imply a yield of about 2.7%.
This comes after tweaking earnings forecasts by 2% for FY19F to reflect a lower-margin outlook, offset by higher revenues, following the release of the group’s financial results for 2Q18.
See: SingPost's 2Q earnings fall 9.5% to $28.5 mil on absence of one-off gain
In a Thursday report, DBS analyst Sachin Mittal says he believes the market is currently pricing in better recovery for both the logistics and e-commerce segments compared to DBS’ estimates, and has yet to fully price in impending changes to terminal dues which will take effect from Jan 1.
The research house has modelled operating profit for logistics and e-commerce to recover to an estimated $25 million by FY19F. This has resulted in earnings forecasts which are slightly above consensus, having input SingPost Centre (SPC) mall’s contributions as well as one-off gains in 1H18.
“We believe that logistics should benefit from improving utilisation at E-Commerce Logistics Hub while facing pressure in its overseas business and are encouraged by e-commerce’s narrowing losses. However, SingPost is not cheap at 23 times FY18F PE,” says Mittal.
In spite of declining margins, the analyst highlights how postal segment revenue registered strong growth over the latest quarter as e-commerce related losses continue to narrow. In particular, he finds the latest quarter’s strong growth in international mail volumes encouraging, and believes there will be even higher volumes in 3Q18 on the back of Singles’ Day volumes from Alibaba.
Mittal is also positive on the recent conclusion of the SingPost’s strategic review, noting a substantial market share in local parcels industry while the group is now set out to deliver full value from overseas investments; develop future growth engines; as well as optimise costs and operations.
“We believe that the group is set in the right direction, but will take time to deliver,” says the analyst.
Maybank Kim Eng has, on the other hand, upgraded its call on the stock to "buy" while raising its price target to $1.50 from $1.22 previously with increased FY19-20E EPS by 1-5% after lifting the growth profile for SingPost's mail business and projecting a turnaround for e-commerce.
In a separate report, Maybank analyst John Cheong notes that while the group's 2Q18 results were mixed, some turning points were reflected in the mail, e-commerce and associates & JV segments in spite of the logistics segment going into loss. Moving forward, the analyst believes these three areas will gain momentum and has therefore tweaked his forecasts to raise EBIT projections for the mail and e-commerce segments, to be offset by weaker logistics contributions.
"Logistics is the only uncertain part, but the earnings drag should be manageable. Management's strategic review appears sound as it focuses on several low-hanging fruits and also targets driving long-term growth," says Cheong, who also expects EBIT for the logistics segment to remained subdued in FY18.
As at 3.58am, shares in SingPost are trading flat at $1.30.
