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'Add' SingPost as it's on route towards a steady recovery: CGS-CIMB

SingPost's recovery is on its way.

CGS-CIMB Research is keeping its “add” call on Singapore Post (SingPost) with an unchanged target price of 90 cents, following the group’s 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, group 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. Group 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.

See: SingPost reports 24% higher group revenue of $437 mil in 3Q business update

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

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, the group 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, as well as drive synergies between its existing Australian businesses to drive further growth in the region.

Looking forward, the analyst 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.

As at 1.35pm, shares in SingPost are trading at 64 cents or 0.85x FY2022 book with a dividend yield of 2.4%.

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