Brokers’ take: CGS-CIMB lowers SingPost target on Q1 operating loss guidance
Add BT as a preferred source
Michelle Zhu
DeeperDive is a beta AI feature. Refer to full articles for the facts.
CGS-CIMB said it was “negatively surprised” by the operating losses expected for Singapore Post’s ( SingPost ) post and parcel segment for the first quarter to June, as a result of significantly higher costs and lower delivery volume from a major e-commerce customer.
In a report on Friday (Jul 15), analyst Ong Khang Chuen said he sees SingPost’s recent update as an implication of weakness in the group’s domestic post and parcel (DPP) volumes, given the high fixed-cost nature of the business.
This has prompted CGS-CIMB to lower volume and margin assumptions for DPP and cut SingPost’s FY2023 to FY2025 earnings per share estimates by 6 to 11.3 per cent to result in a lower target price of S$0.80, down from S$0.90 previously.
The brokerage has maintained its “add” call on the stock, while its revised target price remains based on 18.8 times a 2023 price-to-equity ratio, or half a standard deviation point below the counter’s historical average.
While Ong noted that the group’s strong growth in e-commerce volumes has been able to successfully offset traditional letter mail declines over the past few quarters, he believes this trend is “difficult to repeat” in FY2023 given the recent deceleration in e-commerce growth amid a tougher competitive landscape.
Based on SingPost’s recent operational update for Q1, the analyst also highlighted continued headwinds in the group’s international post and parcel (IPP) business, with traditional letter mail volumes declining in the latest quarter.
Navigate Asia in
a new global order
Get the insights delivered to your inbox.
He nonetheless expects the group’s earnings to improve in the coming quarters, driven by a recovery in the IPP segment.
“IPP recovery was hindered by China lockdowns, which caused conveyance costs to remain elevated, but we expect an improvement in the coming quarters,” said Ong.
SingPost shares closed S$0.01 or 1.6 per cent lower at S$0.635 on Monday.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
