SingPost has seen better days, but prospects remain hopeful

Michelle Zhu

 

SINGAPORE (Nov 8): UOB Kay Hian and OCBC Investment Research have both announced a &ldquo hold&rdquo recommendation on Singapore Post (SingPost) with a lower target price of $1.76 and a higher fair value of $1.47 respectively.

This comes after SingPost reported a 41% decline in 2Q17 earnings last Friday to $31 million. Additionally, as a result of its revised policy, the company declared a significantly lower interim dividend of 1 cent per share compared to 15 cents the year before.

(See also:  SingPost&rsquo s 2Q earnings fall 41% fall to $31 mil declares 1 cent dividend with revised policy)

Thai Wei Ying, UOB&rsquo s lead analyst, explains that the research house has downgraded its rating on the stock after SingPost&rsquo s share price increased by 12% since its upgraded call to &ldquo buy&rdquo in October.

&ldquo While we remain positive on SingPost&rsquo s long-term prospects, the recent outperformance appears to have discounted recent positives, including Alibaba&rsquo s recent investments,&rdquo says Thai. The analyst anticipates continued margin pressure until operating leverage kicks in by FY18, as well as an annual dividend payout of 4.7-6 cents based on FY17-19 EPS.

Despite noting an increasingly competitive logistics space, UOB is hoping that SingPost&rsquo s collaboration with Alibaba will muscle its e-commerce logistics capabilities in the region and strengthen its network.

Meanwhile, OCBC has reiterated its &ldquo hold&rdquo call with expectations of expenses being driven up in the near-term as SingPost builds on its e-commerce logistics capabilities.

The research house&rsquo s lead analyst, Low Pei Han, says the new dividend policy based on a payout ratio ranging from 60-80% is &ldquo not a surprise&rdquo as SingTel&rsquo s dividend payout ratio, too, is 60-75% of underlying net profit. Low believes it will take time for SingPost to record productivity gains as it continues to build up scale.

&ldquo Margins in the logistics space are lower than mail, and competition in e-commerce logistics has also been increasing,&rdquo she adds.  

Shares of SingPost closed unchanged at $1.54.