SINGAPORE (May 9): UOB Kay Hian and OCBC Investment Research are maintaining their “hold” calls on Singapore Post (SingPost) with a $1.06 price target and $1 fair value estimate, respectively, after the group announced a 4Q19 loss of $75.1 million due to US business-related impairment charges and exceptional items. 

CGS-CIMB Research, on the other hand, continues to rate the stock at “add” with a lower target price of $1.17 compared to $1.20 previously.

In a Wednesday report, UOB analyst Lucas Teng recommends an entry price of 95 cents as he cuts FY20-21 net profit forecasts by up to 7% to reflect margin pressure on the group’s postal segment from service enhancement initiatives, as well as lower revenue growth for Quantium Solutions.

This has resulted in 7% and 3% lower adjusted net profits of $94 million and $106 million for FY20 and FY21, respectively, including the impact after perpetual securities.

Despite the group’s ongoing cost-saving measures in the form of tech and infrastructure enhancements, Teng believes the results will take time to bear fruit as it continues to cope with volume pressures from an e-commerce era.

“While management still sees a future in ecommerce, its focus is very much on the Asia Pacific region in which it can look to tap on synergistic advantages from existing businesses,” he adds.

Likewise, OCBC’s Low Pei Han says time is required for the group’s ongoing initiatives to bear fruit.

Until then, she is expecting continued pressure on SingPost’s margins, especially since the profitable admail segment has been reduced for now to due to the planning and logistics challenges it poses to the group’s postal network.

“Do note that besides the impairments that have bene made, the group expects to continue to account for operating losses of the US business until it completes an exit,” comments Low on SingPost’s latest quarterly performance.

“Looking ahead, capital expenditure with the bulk relating to technology is expected to be incurred. Hence we expect pressure on margins, till process improvements and technology investments bear fruit in the future,” she adds.

CGS-CIMB analyst Ngoh Yi Sin however believes there is limited downside to SingPost’s stock going forward, having already booked almost-full impairment to the US e-commerce businesses.

In her view, the $9.9 million provision made for headcount rightsizing, closure of underperforming functions and asset consolidation, among others, could work towards containing the US operating losses until SingPost completes its divestment.

“We now factor in weaker postal margins from the hiring of 100 more postmen (total: 200) and additional infrastructure investments, as well as softer logistics volume, which led to our FY20-21F EPS cuts of 2.3-5.5%,” says Ngoh.

The analyst nonetheless continues to like the stock for its 3-4% yield, and believes risks have been priced in at 1 s.d. below the mean.

As at 11:34am, shares in SingPost are down by 1 cent at 98 cents, or 1.36 times Mar-20F book value.