OCBC Investment Research analyst Chu Peng is recommending investors continue to “hold” onto Singapore Post (SingPost) with an increased fair value estimate of 74 cents from 71 cents.

Shares in SingPost have risen 8% month-to-date (m-t-d) in April as investors see the counter as a potential restructuring play following the Singapore Press Holdings (SPH)’s strategic review and CapitaLand Limited’s proposed restructuring.

While Chu says she is unaware of any material change in SingPost’s operations and guidance, she notes that the group “had undertaken a series of restructuring exercises to step up its transformation and growth in the digital age in recent years”.

SEE:DBS Group Research maintains SingPost’s 'fully valued' call on tough competition

“For example, SingPost exited its US business in 2019 and reclassified the reporting of its business under three key business segments. In addition, the group has stepped up investment to improve service quality and continued its efforts to transform its logistics and e-commerce businesses,” she writes in an April 14 report.

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That said, Chu expects margin pressure to continue for the group as it continues to face headwinds arising from lower volumes of letters and printed papers in Singapore.

Higher conveyance costs for its international post and parcel business, which the group is unable to pass on to its customers, is also another contributing factor to margin pressures.

On the other hand, the group has benefitted from strong growth in e-commerce volumes in Singapore and Australia in 3QFY2021, where e-commerce volume rose 36% y-o-y for domestic post and parcel in Singapore.

The higher volume is due to customers’ preference for SingPost as their preferred provider for e-commerce deliveries.

SingPost’s logistics segment has also benefitted from a strong growth in e-commerce volumes in Australia, with a 74% surge y-o-y. This, Chu says, is due to increased e-commerce adoption, partly due to Covid-19.

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On this, Chu has identified potential catalysts on the stock to include injection of property assets into a REIT, significant volume increase in logistics, accretive acquisitions in the region at “reasonable valuation multiples” and the smooth execution of its integration plans.

Conversely, the heightened competition in logistics and mail, macroeconomic deterioration, impairment of assets from earlier acquisitions as well as acquisition and integration risks could result in downsides for SingPost’s share price.

Shares in SingPost closed 0.5 cent lower or 0.7% down at 75 cents on April 15.