SINGAPORE (Feb 13): UOB Kay Hian, Maybank Kim Eng and OCBC Investment Research are unanimously maintaining their “hold” calls on Singapore Post (SingPost) after the provider of mail, logistics and eCommerce solutions on Friday posted a 27.9% fall in 3Q17 earnings – falling short of earnings estimations for all three research houses.  

(See also: SingPost records 27.9% fall in 3Q earnings to $31.4 mil on US e-commerce operating losses)

In particular, the brokerages have highlighted the risk of “significant impairment” to the carrying value of SingPost’s US subsidiary TradeGlobal – as previously disclosed by the company’s management – as a factor which could adversely impact the stock’s future business plans as well as results for the full financial year ending Mar 13.

Subdued outlook for near-term earnings
UOB has lowered its target price on SingPost to $1.46 from $1.76 previously on the belief that the company’s earnings will continue to be hampered by a weaker performance at TradeGlobal, as well as elevated transformation costs.

Noting how operating margins have been declining on all fronts, UOB analysts Thai Wei Ying and Andrew Chow have also modelled in higher volume-related cost assumptions, as well as increased labour and administrative expenses for the new subsidiary at TradeGlobal.

“Nevertheless, we remain positive on SingPost’s long term prospects, and will likely turn more positive when we see faster scale up in volumes in the group’s network so that it can derive sufficient operating leverage from economies of scale,” say Thai and Chow.

FY17E earnings could be ‘wiped out’
In a separate report on Monday, Maybank analyst John Cheong highlights that the domestic mail segment’s decline is expected to continue due to a wider push for e-statements. The research house has lowered its price target estimate to $1.34 from $1.75 previously.

Cheong also believes that the write-off of TradeGlobal’s entire $169 million goodwill could “wipe out SingPost’s FY17E earnings”, but adds that dividend for the full year should remain intact as an impairment would be considered a non-cash and non-core item.

While OCBC analyst Low Pei Han expects SingPost’s logistics segment to benefit from growing eCommerce trends, she believes the company’s tight operating margins – in addition to the “continued change in mix from the high-margin domestic mail segment to the lower-margin international mail and logistics segments”, should continue to drag on its earnings going forward.

The research house has lowered its fair value estimate on the stock from $1.47 to $1.42.

Shares of SingPost were down as much as 7% on Monday morning before recovering to trade 4.42% lower at $1.40 at 11.51am.