CGS-CIMB cuts SingPost target price despite 3Q earnings growth

SINGAPORE (Feb 4): CGS-CIMB Securities is maintaining its “hold” call on Singapore Post (SingPost) while lowering its target price to $1.03 from $1.12 previously, which now implies 19.7 times FY20F P/E.

This comes after factoring in better cost management in FY19F; more conservative growth assumptions for FY20-21F; and an updated share base post the release of the group’s latest set of quarterly results.

To recap, SingPost recently announced 15.6% higher earnings of $50.2 million for 3Q19 due to higher revenue and an exceptional gain of $28.2 million.

Underlying net profit, however, fell 7.5% to $32.9 million due to higher losses from the group’s US businesses, which comes in broadly above CGS-CIMB’s expectations and in line with consensus.

In a report last Friday, analyst Ngoh Yi Sin says she expects a prolonged turnaround for SingPost’s US businesses and sees impairment risk in 4Q, given the intense competition and rising number of bankruptcy causes.

She notes that SingPost’s US e-commerce operations continues to be the biggest drag on the group’s earnings, despite some improvements in the group’s Famous Holdings freight-forwarding business and narrowed losses at Quantium Solutions (QSI) in the latest quarter under review.

Going forward, the analyst says investing in infrastructure and enhancing service quality “remain paramount” to SingPost in order to defend its margins and market share in the international mail segment.

“While the industry outlook remains challenging, we keep our ‘hold’ call, premised on 3-4% dividend yield and trading valuation of 0.5 s.d. below historical mean. Impairment and heightening competition are the main downside risks, while a positive outcome from the review of its US presence could be a catalyst,” says Ngoh.

As at 10:36am, shares in SingPost are trading 1.55% lower at 95 cents or 1.23 times FY19F book value.