Analysts from CGS-CIMB Research, DBS Group Research and UOB Kay Hian have maintained their “hold” calls on Singapore Post (SingPost) as the group’s FY2021 results missed expectations for all three brokerages.

SingPost, on May 6, reported a 55.7% y-o-y drop in earnings of $16.7 million for the 2HFY2020/2021 ended March 31.

Earnings for the FY2020/2021 fell 47.7% y-o-y to $47.6 million.

To CGS-CIMB analyst Ong Khang Chuen, the results fell below his expectations at 87% of his FY2021 estimates.

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While he has lowered his earnings per share (EPS) estimates for the FY2022-2023 by 4.9% to 8.1% to reflect the higher volume-related cost assumptions, Ong has upped his target price to 77 cents from 70 cents previously. The higher target price comes as Ong raises his target price-to-earnings (P/E) multiple 18.8 times, in view of the systemic vaccine roll-out in Singapore and the gradual resumption of flights through Changi Airport in 2HFY2021.

DBS analyst Sachin Mittal has, similarly cut his EPS estimates for FY2022 by 24%, as he sees SingPost’s underlying net profit recovering only by 17% to $70 million FY2022, compared to his earlier expectations of $92 million.

Mittal has lowered his target price on the counter to 69 cents from 74 cents previously, representing 24 times FY2022 P/E, near -1 standard deviation (s.d.) valuation of 23.1 times based on the past-four-year average.

“A much slower opening of passenger flights at Changi Airport is leading to a big spike in operating costs for disapatching international posts and parcels via alternative routes. This coupled with an absence of $24.5 million in FY2022 from the expiry of Job Support Scheme (JSS), may cap any upside to our FY2022 earnings projections,” he writes.

SingPost’s dividend yield of less than 2% is “unexciting” as the group seeks to preserve cash amid uncertain outlook.

“Management has slashed the dividend payout ratio to 40% from the previously guided 60-80%. We project 40% payout ratio in FY2022 rising to 50% in FY2023,” he says.

Mittal also perceives headwinds for SingPost arising from strong competition.

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“With e-commerce penetration at only 4-5% of retail sales in Asean (vs 24% in China), venture capitalists are funding many logistics start-ups in the hope of attaining scale in the future, is making competition irrational.”

UOB Kay Hian analyst Lucas Teng has also lowered SingPost’s target price to 73 cents from 75 cents as the group missed expectations.

“Operating margins have been hard hit, falling to 5.6% (-5.3 percentage points y-o-y) in spite of the positive outlook from e-commerce demand propelling the domestic post and parcel segment as well as the logistics segment,” he writes.

“The visibility on air freight capacity is still uncertain, which could continue to weigh on margins,” he adds.

Teng has cut his earnings forecasts for FY2022-2023 by 2% to 11% as he incorporates higher volume-related expenses on the back of elevated conveyance costs from flight disruptions.

On his new target price estimate, Teng explains, “We value: the mail business at 10 times FY2022 P/E; logistics business at 8.0 times FY2022 EV/EBITDA, both in line with peers’ average; and property at a cap rate of 5%.”

Shares in SingPost closed 1 cent lower or 1.3% down at 73.5 cents on May 7, or at 1.3 times P/B according to UOB's estimates.