CGS International is reiterating its “add” recommendation on Singpore Post (SingPost) with a lower target price of 60 cents from 63 cents previously, as analyst Ong Khang Chuen sees strong EPS growth of 67% in FY2025from the consolidation of Border Express and stake increases in Freight Management Holdings; and recovery in domestic post and parcel business.
This Aug 19 report comes on the back of the group releasing its 1QFY2025 business update, which saw group operating profit gaining 105.2% y-o-y to 24.4 million, on the back of a 22.4% y-o-y increase in group revenue to $494.8 million.
The revenue growth was supported by growth in the Australia and Singapore businesses, outweighing declines in the International and freight forwarding businesses which continued to be impacted by challenging business conditions.
1QFY2025 operating profit or Ebit formed 19%/20% of CGS/Bloomberg consensus for FY2025, roughly in line with expectations.
Ong sees Australia as a bring spot for the group. Aside from full-quarter contribution from newly-acquired Borders Express, SingPost’s organic business in Australia performed steadily despite weak consumer sentiment, with improvements in its 4PL segment offsetting the softness in its 3PL business.
Border Express delivered revenue/EBIT growth of 5%/24% y-o-y in 1QFY2025, driven by new customer acquisitions and strong cost control. SingPost is currently going through integration planning amongst its Australian entities. “We see room for revenue and cost synergies (potentially lifting its Australian business operating profit margins by up to 2 percentage points) within the next two years. SingPost is currently reviewing strategic options for its Australia business (including strategic stake sale, IPO etc.), which it expects will be completed by end of the year,” says Ong.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Meanwhile in Singapore, postage rate hikes have provided some support to the group. Singapore revenue and profits both grew y-o-y in 1QFY2025, with increased ecommerce volumes and higher postage rate offsetting declines in letter mail volumes. Despite significant postage rate hike in October 2023, the letter mail volume decline was limited at -8% y-o-y in 1QFY2025.
“SingPost remains in talks with the government on future operating model to reduce reliance on physical post office branches,” notes Ong.
International segment remains the weak spot with volumes down 24% y-o-y in 1QFY2025 amid a competitive business environment. The group remains focused on maintaining profitability and protecting margins here.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
The group has also reiterated that it remains committed to explore monetisation opportunities for its non-core assets.
As at 12.00pm on Aug 20, shares in SingPost are trading 2.3% lower at 42 cents.
