SINGAPORE (May 11): Although SingPost managed to swing back into the black for 4QFY2019/20, analysts remain ambivalent on the next quarter ahead as the group grapples with Covid-19 challenges.
DBS Group Research is now projecting a 19-20% drop in the group’s earnings for FY2021-22F compared to a growth of 3% earlier. Meanwhile, CGS-CIMB Research has cut its FY2021-22F earnings per share (EPS) by 6.6-6.7%.
To recap, the group had booked earnings of $7.2 million for 4Q, a reversal from losses of $75.1 million last year. This, in turn, lifted its full-year earnings to $91.1 million, nearly quadruple that of earnings of $19.0 million last year.
Despite the improvement in bottom line figures, revenue for the quarter decreased by 2.7% to $312.2 million from $320.7 million. This was due primarily to a 5.7% decline in the group’s post and parcel segment, but was partially mitigated by growth in the logistics sector.
See: SingPost reverses out of the red in 4Q, prepares to capitalise on Covid-19 'opportunities'
According to DBS, the virus has led to an accelerated decline in high-margin domestic mail revenue which comprises the bulk of SingPost’s operating profit.
“This is a structural shift in our view,” says DBS analyst Sachin Mittal.
“Crossborder e-commerce related deliveries, on the other hand, are likely to see accelerated growth in 2HFY2021F once economic activities resume, although their thin margins in the wake of higher terminal dues from Jan 2020 onwards, might not be enough to stabilise SingPost’s operating profit,” adds Mittal.
CGS-CIMB analyst Ngo Yi Sin observes that the group had incurred higher conveyance costs as a result of supply chain disruptions and terminal dues which came into effect in January.
“We expect margin pressure in the near-term, though gradual opening of international borders and air capacity could pose some earnings upside,” says Ngoh.
“While property segment held steady in 4Q, we forecast weaker earnings in FY2021F from closure during circuit breaker, rental rebates to its tenants, as well as possibly lower rental reversions and occupancy if outbreak prolongs,” she adds.
Mittal also hones in on the group’s logistics segment which is facing “tough competition” due to the increasing presence of international logistics players.
“SingPost has struggled to make meaningful operating profits from logistics largely due to competitive pressures which have resulted in tight operating margins,” explains Mittal, citing ‘intense' competition in Hong Kong which is likely to persist in the near term.
“Many small players are also subsidising e-commerce deliveries in the hope of attaining scale,” adds Mittal. “Hence, competition in this space may remain irrational unless there is a change in funding landscape.”
However, analysts are quick to caution that not all is doom and gloom for the group. Mittal notes that the group is now looking to reap operating synergies from integrating its post and parcel divisions, terming it a “step in the right direction.”
“The hike in international letter mail rates may subsidise part of the increase in terminal dues given that the Universal Postal Union’s member countries have now reached an agreement on postal remuneration rates,” says Mittal.
“The latter may lead to potential cost savings as there will be reduced burden of doorstep delivery for packages,” he adds.
CGS-CIMB’s Ngoh says that the group has benefitted from higher domestic e-commerce volumes and strong take-ups from third-party e-commerce platforms, although these encompass only a small revenue base.
“This, together with labour constraints, strengthens the case for SingPost’s smart urban logistics project, which will also free up industrial space for its property portfolio,” she says.
“Logistics’ loss narrowed to $2.2 million in 4QFY2020, thanks to its asset-light model and new customers; we think recovery in Hong Kong and Australia (its bigger markets) could catalyse faster turnaround for this segment,” she adds.
CGS-CIMB is opting to remain optimistic about the group’s prospects on the back of its net cash position, as well as the group being a likely proxy to e-commerce and global trade recovery.
The brokerage is reiterating its “add” call on the group with a target price of 85 cents, down from 88.1 cents previously.
On the flipside, DBS has downgraded the counter to “fully valued” from the previous “hold”, with a reduced target price of 64 cents from the previous 85 cents.
As at 11.59am, shares in SingPost are trading 1.5 cents higher, or 2.03% up, at 75.5 cents. This translates to a price-to-earnings ratio of 17.8 times and a dividend yield of 3.7% for FY2021F according to DBS valuations.
