Analysts lower their TPs on SingPost amid challenging headwinds and higher operating costs

Higher operating costs such as fuel and labour costs dragged down overall margins.

Analysts at OCBC Investment Research (OIR) and UOB Kay Hian have maintained their “hold” calls on Singapore Post (SingPost) with lower fair value estimate and target price of 56 cents and 52 cents respectively.

Despite a 31.3% y-o-y increase in revenue, SingPost’s operating profit declined 19.1% y-o-y to $41.3 million while bottom line turned into a loss of $9.9 million in its 1HFY2023 ended September, OIR analyst Chu Peng points out.

“Excluding the impact of exceptional items, underlying net profit would have fallen 64.7% y-o-y to $13.2 million. The decline was mainly attributable to weaker performance in the post and parcel (PP) segment, higher operating expenses and a lower share of profit of associated companies and joint ventures,” she adds.

SingPost’s 1HFY2023 PP revenue fell by 19.6% y-o-y and had an operating loss of $12.1 million. Higher operating costs such as fuel and labour costs dragged down overall margins, says UOBKH analyst Lleylleythan Tan. The company had stated that discussions with the government regulators to increase postage rates are still ongoing. If approved, operating losses can be narrowed, he adds.

The company’s 2QFY2023 volumes for the domestic PP segment were lower y-o-y as both e-commerce as well as letter and printed papers subsegments fell by 34.6% and 2.5% respectively. International PP volumes also fell 15.2% y-oy as sporadic lockdowns persisted in China, coupled with elevated air conveyance costs. Meanwhile, consignment volumes in Australia declined 3.8% as e-commerce volumes softened, coming off pandemic highs, Tan highlights.

Logistics segment now makes up SingPost’s largest segment, says Chu. The segment’s revenue was up 79.4% y-o-y to $680.8 million while operating profit more than doubled to $41.5 million in 1HFY2023, boosted by its Australia business, with strong contributions from the Freight Management Holdings (FMH) Group and the freight forwarding business.

Due to FMH’s strong performance, it was revalued at a higher valuation in 1HFY2023, says Tan. As SingPost only owns 51% of FMH, the consequent effect of the higher valuation is a fair value charge of $21 million, accounting for the other 49% stake SingPost does not own.

“As FMH is expected to continue seeing an uptrend, we opine that FMH would be revalued at an even higher valuation, thus incurring additional charges moving forward. SingPost is exploring acquiring the rest of FMH with a put option of 23% stake in FMH, which may be exercised by end-2HFY2023,” he adds.

Tan has reduced his Patmi forecasts for SingPost, accounting for the revaluation charge and lower postal volumes. The current forecasts for FY2022-FY2024 PATMI stood at $13.9 million, $25.5 million and $64.8 million respectively.

Meanwhile, Chu has lowered her EPS estimates by 2%-29% after factoring near-term headwinds amid a slower economic growth and higher operating costs.

As at 10.08am, shares in SingPost are trading at an unchanged 53 cents.

 

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