SINGAPORE (Nov 5): Singapore Post (SingPost) reported a 2.2% y-o-y rise revenue to $368.7 million and a 12.9% drop in earnings to $25.1 million in 2Q19.

Excluding one-off items, underlying net profit rose 0.4% to $28.1 million in the quarter, bringing 1H19 to $52.8 million.

The bottom-line was supported by improved profit on operating activities but offset by negative contribution from associated companies investing for growth and higher taxes.

See: SingPost reports 13% fall in 2Q earnings to $25 mil on one-off fair value loss on warrants from associate

In a Friday report by OCBC Investment Research, analyst Low Pei Han says SingPost’s 2Q and 1H results came in line with its expectations.

In a CGS-CIMB Securities note released on the same day, analyst Goh Yi Sin says excluding exceptional items, 2Q19 underlying net profit came in slightly above its expectations but was in line with consensus.

According to management, SingPost the ongoing integration of its postal and parcel delivery networks are starting to show operating synergies, says OCBC’s Low.

In the post and parcel segment, revenue increased on growth in cross-border e-commerce deliveries, while operating profit rose 5.1% to $42.1 million in 2Q19, driven by higher margins from last-mile e-commerce. In Singapore, SingPost has seen average daily parcel volumes rise 38% from a year ago.

However, CGS-CIMB’s Goh says she senses management’s cautious tone on more controlled volume mix to manage profitability, as well as possible global slowdown in e-commerce volumes due to higher terminal dues.

Its logistics segment reversed a loss largely due to smaller losses at associate’s Quantium Solutions US business which has been reviewing unfavourable contracts plus strong contributions from the freight forwarding business. RHB sees the business as “as still”.

The e-commerce reported operating losses widened to $11.2 million in 2Q19 due to pricing pressures in the US businesses, higher costs due to integration of TradeGlobal and Jagged Peak as well as investments in automation. OCBC’s Low says management has insisted there is “no intention to sell off the US business”.

Although new customers were added, Goh of CGS-CIMB says this was not significant enough to improve revenue for logistics and e-commerce.

“We remain wary of unabating competition in North Asia’s logistics and US e-commerce, and will look to 3QFY19 for execution,” says Goh.

“We tweak our earnings estimates and with the increase in risk premia along with the market sell-down, we increase our cost of equity assumptions and our fair value estimate slips to $1.23,” says Low of OCBC which is maintaining its “buy”.

“We are likely to turn more positive on faster e-commerce turnaround and international mail growth; rising competition and poor overseas execution could pose downside risks to our ‘Hold’ call,” says CGS-CIMB’s Goh who has a target price of $1.12, implying 20.3 times FY20F earnings.