SINGAPORE (Nov 16): A turnaround seems to be on the cards for Singapore Post.
The national postal carrier saw its earnings fall 9.5% to $28.5 million in 2Q on the absence of a one-off gain a year ago. However, excluding exceptional items, underlying net profit rose 1.9% to $27.6 million during the quarter.
Revenue grew 10.2% to $354.7 million, from $321.7 million a year ago, led by growth in the postal and logistics segments.
See: SingPost's 2Q earnings fall 9.5% to $28.5 mil on absence of one-off gain
“Evident in 2Q results was improvement in three out of four growth cylinders, including mail, e-commerce and associate earnings, which we believe will gain momentum,” says Maybank Kim Eng Research analyst John Cheong in a report on Thursday.
With the turnaround of key segments, Maybank is upgrading SingPost to “buy”, from “hold” previously.
It is also raising its target price to $1.50, from $1.22 previously, after lifting the growth profile for mail business and projecting a turnaround for e-commerce.
“Management’s strategic review appears sound as it focuses on several low hanging fruits and also targets driving long-term growth,” says Cheong. “Although there is nothing fancy, we think the aims are practical and emphasize mostly on executable initiatives.”
Meanwhile, CIMB Research analyst Ngoh Yi Sin rues a set of 2Q results that was marred by unexpected logistics losses.
“Quantium Solutions (QSI) in Hong Kong was the key culprit behind logistics’ 2QFY18 operating loss of $4.2 million, as it suffered intense pricing competition and a $5.2 million doubtful debt provision for its key customer,” says Ngoh.
“We expect near-term pressure for QSI to persist, while the regional ecommerce logistics hub could see higher utilisation from a seasonally-strong 3Q,” she adds.
CIMB is keeping its “hold” call on SingPost with a lower target price of $1.28, from $1.35 previously.
“We lower our FY18-20F EPS by 4.6-9.1%, as we assume higher international mail volume and stronger associates’ contribution but lower operating margins for both postal and logistics segments,” says Ngoh.
As at 3.34pm, shares of SingPost are trading flat at $1.28. According to Maybank forecasts, this implies an estimated price-to-earnings ratio of 24.3 times and a dividend yield of 2.9% in FY18.
