Enroute to steady recovery Singapore Post

Price target: CGSCIMB “add” 90 cents

CGS-CIMB Research is keeping its “add” call on Singapore Post (SingPost) with an unchanged target price of 90 cents, following its latest 3QFY2021 ended December 2021 business update.

In its business update, SingPost recorded revenue of $437 million, up 24% y-o-y, driven mainly by Famous Holdings (FMH), growth in e-commerce logistics and the consolidation of FMH. The higher revenue was partly offset by lower international post and parcel (IPP) revenue.

During the quarter, operating expenses increased 23% y-o-y to $400 million from volume-related expenses on the back of higher volume in freight forwarding and e-commerce logistics. Operating profit surged 46% y-o-y to $38 million mainly due to higher profit from FMH, domestic post and parcel (DPP) and from the consolidation of FMH.

“We believe that SingPost’s post and parcel segment can see further recovery in FY2023,” states Ong Khang Chuen in his Feb 25 report.

Domestically, e-commerce volumes grew to 15.5 million in 3QFY2022, representing a 23% q-o-q increase and a 50% y-o-y growth. This is helped by year-end peak shopping season and one-off nationwide distribution projects such as for ART kits and mouth gargles, of which Ong expects continued growth riding on structural increase of e-commerce penetration.

On the international front, IPP business has already seen some profit recovery in 3QFY2022, and Ong expects further recovery as flight capacity out of Changi Airport recovers more significantly. That, according to the analyst, will help alleviate conveyance costs, and aid margin recovery for the IPP business.

Meanwhile, further investments in the group’s logistics are expected to grow. SingPost’s freight forwarding business continued its strong performance in 3QFY2022, benefitting from higher volume and sea freight rates.

At the same time SingPost is stepping up its investments in Australia with the intention of building it into its second home market. Aside from the stake increase in FMH, SingPost will also continue to build scale and capabilities.

Looking forward, Ong expects earnings recovery as more flight through Changi gradually resumes. At this point of time, Ong believes that the stock’s valuation is attractive, as it is trading at 1.3x standard deviation below mean. .—