Following Singapore Post S08 ’s (SingPost) business update for the 3QFY2024 ended Dec 31, 2023, analysts from UOB Kay Hian (UOBKH) and CGS-CIMB Research have lowered their target price to 54 cents and 58 cents respectively, while OCBC Investment Research (OIR) has an unchanged target price of 55.5 cents.
However, all analysts from the three brokerages have kept their “buy” and “add” calls, signalling an overall positive stance on stock.
The group saw an operating profit of $27.7 million for the 3QFY2023/2024, 18.2% lower than the group operating profit of $33.9 million recorded in the previous corresponding period.
OIR’s analyst Ada Lim notes that all of SingPost’s businesses posted positive operating profit, but the current macroeconomic environment remains challenging.
SingPost’s group revenue and operating profit were down 8% and 18.2% y-o-y to $455.4 million and $27.7 million respectively, representing an operating margin of 6.1%, which is lower than 3QFY2023’s 6.8% as operating expenses fell by a narrower 6.7%.
On a constant currency basis, group operating profit would have only been down 3.9% y-o-y. However, on a q-o-q basis, group revenue and operating profit expanded by 7.6% and 42.1% respectively, says Lim.
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“3Q is typically a seasonal peak for SingPost, and all businesses posted positive operating profit during the quarter. 9MFY2024 group revenue came in at 73% of our full-year forecast,” she says.
However, UOBKH’s analyst Llelleythan Tan says that SingPost posted a weak quarter that was below his expectations. CGS’s analyst Ong Khang Chuen also notes that the group’s ebit was “slightly below expectations”.
All three analysts have highlighted in their report that SingPost has recorded notable post and parcel segment improvements.
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For the quarter, SingPost’s domestic post and parcel (DPP) segment was profitable – the local postage rate increase in the DPP segment has stemmed y-o-y revenue declines, while eCommerce volumes grew 16% during the quarter on the back of new customer acquisitions and increased share of customer volumes, says Lim from OIR.
Although the profitability of the delivery business has improved significantly, the post office network remains unprofitable, as management continues to review and rationalise this, she adds.
Meanwhile, the profitability of the international post and parcel (IPP) segment has improved, says Lim. While cross-border e-commerce volume declined 12% q-o-q due to softening global volumes because of the slowdown in global trade, air conveyance costs continued to trend downwards, falling 30% y-o-y and driving significant margin improvement.
“Going forward, management expects air conveyance costs to continue to decline as more capacity comes online in tandem with the flight network restoration,” says Lim.
All three analysts note that the only segment of business that saw a decline in both revenue and operating profit was freight forwarding, on the back of significant weakening in sea freight rates and volumes.
However, margins remained constant. The rest of the logistics business in Australia continued to perform steadily in local currency terms, with FMH Group and CouriersPlease registering 5% and 14% y-o-y volume growth respectively, on the back of new customer acquisitions.
OIR’s Lim notes that excluding Famous Holdings to strip out the impact of the freight forwarding business, and on a constant currency basis, management shared that group operating profit would have been up close to 20% y-o-y.
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Finally, SingPost’s property revenue and operating profit held steady, though overall occupancy dipped from 99.5% as at Sept 30, 2023, to 96.3% as at Dec 31, 2023.
OIR’s Lim says this was largely driven by a decline in office space occupancy from 99.2% to about 95% during the period, while retail mall space remains at full occupancy.
Management shared that the strategic review of the business, which will focus on transitioning SingPost to a logistics business over time, is in the final stage of completion, and that the company is expected to make a formal announcement of the outcomes before the end of FY2024, she notes.
“In our view, logistics is likely to remain the key growth driver for SingPost, and management staying optimistic on cross-border e-commerce growth opportunities,” says Lim. “We keep our forecasts intact and maintain our fair value estimate of 55.5 cents.”
For UOBKH’s Tan, he has lowered his FY2024-FY2026 patmi forecasts at $36.2 million ($40.7 million previously), $69.9 million ($77.1 million previously) and $94.2 million ($102.4 million previously) respectively.
Based on his sum-of-the-parts (SOP) valuation, he values SingPost’s property segment at about $825 million.
“Given that SingPost’s current market capitalisation is only around $921 million, we think that the market is severely undervaluing both the logistics and mailing segments. At our target price, SingPost trades at 17x FY2025 PE, slightly below -1 standard deviation (S.D.) to its long-term mean,” says Tan.
His target price is therefore 54 cents.
On the other hand, Ong from CGS-CIMB has lowered his target price to 58 cents, on lower earnings per share (EPS) estimates. He anticipates FY2025’s earnings growth to be on the back of annualisation of impact from postage rate hike, earnings accretive investments and cross-border business recovery.
However, Ong’s concerns are that there will be a steeper drop in letter volumes, or further spike in operating costs due to the inflationary environment hurting margins.
As at 4.58 pm, shares in SingPost are trading flat at 41 cents.
