DBS Group Research analysts Sachin Mittal and Lim Rui Wen have maintained their “fully valued” recommendation for Singapore Post Limited (SingPost), with a stable target price of 64 cents, which represents a 14% downside on the stock due to the lack of near-term catalysts.

Due to COVID-19, SingPost saw a steep decline in domestic mail revenue, which comprises a large portion of their revenue, say the analysts in a report dated July 29. 

Mittal and Lim believe that  “international mail, on the other hand, may slowly recover in 2HFY21F as economic activities resume.”

However, higher terminal dues from January onwards may not be able to stabilize the thin margins from SingPost’s international mail segment, as well as the company’s operating profit.

Indonesia has released a mandate that the de minimis exemption on shipments imported into the country will be revised downwards to US$3 ($4.14) per shipment from US$75 previously for all imported goods shipped on a business to consumer (B2C) basis from end January.

Mittal and Lim expect other countries to implement similar rules to support local businesses. The mandate from Indonesia, which lowers delivery charges significantly, does not translate into higher revenues for SingPost.

SingPost also faces strong competition in the e-commerce and logistics sector.

With the rise in popularity of e-commerce in ASEAN, venture capitalists are funding loss-making third-party (3PL) regional logistics players in the hope of attaining scale to generate profits in a few years’ time. Many small players are also subsidising e-commerce deliveries to increase their market share, say the analysts. 

Hence, a solution that Mittal and Lim proposed for SingPost was to ‘’acquire players in the ecommerce logistics space in Asia”, because there are many small businesses that are struggling after the effects of COVID-19.

SingPost has also taken initiative to create more revenue through their new smart letterbox initiative, which will most likely be put into public trial by 2H20. These smart letterboxes are one-stop stations where people can collect their etters, packets and parcels. This new system will change the postal landscape and help drive down costs for SingPost.

However, capital expenditure (capex) for these smart letterboxes may cap dividends for the time being.

As at 12:05pm, shares in SingPost were changing hands 1 cents lower, or 1.351% down, at $0.73.