Jarick Seet of Maybank Securities has maintained his "buy" call on SingPost along with a 77 cents target price, on expectations that the company can return up to 86 cents per share to shareholders over the coming two years with its asset monetisation move starting to get underway.
Seet's Dec 6 note refers to a Dec 5 note by ratings agency S&P which puts SingPost on negative credit watch, citing "uncertainty" over future earnings prospects of the company.
SingPost is selling its key Australia-based unit Freight Management Holdings for A$1.02 billion in cash. Upon completion of the divestment, SingPost will realise a gain of $312.1 million.
S&P believes that with Australia accounting for the bulk of SingPost's earnings profile in recent years, the "loss of a key earnings pillar introduces uncertainty over the future strategy and earnings contribution."
"It also unwinds management efforts over the past four years to diversify the business from earnings in structural decline and build a second-home base.
"The strategic backtracking highlights the uncertainty over the future direction of the company, and calls into question the consistency and execution of the company's stated strategy," says S&P.
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In response, Seet calls the move by S&P to put SingPost on a negative credit watch "irrelevant".
"We believe that further non-core assets will be monetised and debt likely pared down in the near term following further asset sales," says Seet, who estimates that SingPost can reduce its total debt from $895 million to $350 million with proceeds from the divestment.
He believes that SingPost's finance expenses to be lowered significantly too given how it is paying more than 5% for its Australian-dollar denominated debt versus just 3% for its Singdollar-denominated borrowings.
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Seet estimates that coupled with existing cash balance, SingPost's cash position will increase to $1.3 billion, versus $1.1 billion in debt that it now carries.
He believes that SingPost's proceeds from the divestment will not be reinvested but instead, following repayment of debt, be paid out to shareholders in the form of special dividends.
According to Seet, other possible divestments will include another Australia unit Famous Holdings, SingPost Centre and some of its post offices.
"All in all, we expect potentially up to 86 cents per share in dividends in the next 2 years after monetising its non-core assets and paring down debt," says Seet.
SingPost, according to Seet, has put forward a clearer roadmap on how it plans to return shareholder value.
"We think the downside risk is now limited and maintain a conviction 'buy' on SingPost over its asset monetisation story.
"Its key shareholders are also monetising non-core assets to return to its own shareholders," says Seet.
SingTel, with more than a fifth of the shares, is SingPost's largest shareholder, and is well underway on a multi-year asset recycling plan of its own.
SingPost shares changed hands at 58 cents as at 9.56 am, up 0.87% for the day and up 23.4% year to date.
