Brokers’ take: CGS-CIMB upgrades SingPost to ‘hold’, says worst could be over

CGS-CIMB has upgraded its call on Singapore Post (SingPost) to "hold" from "reduce" while maintaining its target price of S$0.55.

The analyst Ong Khang Chuen said he foresees a recovery for SingPost even after the postal service company on Thursday (Nov 3) posted a net loss of S$9.9 million for the half year ended Sep 30, after accounting for an exceptional item related to the acquisition of an Australian unit.

Describing the results as "broadly in line" with previous forecasts, Ong noted that SingPost's Q2 operating profit of S$30.7 million signalled a "strong rebound", tripling quarter on quarter against Q1 2023.

He also pointed to reversed losses in SingPost's post and parcel segment, the growing volume of its e-commerce business and the scaling of its Australian business as signs that the company will recover.

The analyst increased forecast revenue for FY2022 to S$2 billion, up from S$1.9 billion previously, and lowered earnings per share for FY2022 to S$0.009 from S$0.014. CGS-CIMB maintained its valuation of SingPost at a price-to-equity multiple of 15.8 times for 2023, which is one standard deviation below its five-year historical average.

Ong however remained cautiously optimistic as he believes the road to recovery "likely remains bumpy".

"We think the worst could be over for SingPost, though the pace of recovery from current levels remains uncertain given various macro headwinds," the analyst said, flagging lower ocean freight rates as a potential bane for the company's freight forwarding business.

He added that prolonged volume weakness on the domestic front could pose further challenges to the post and parcel business.

As at 3.25 pm on Friday, shares of SingPost were trading 1.9 per cent or S$0.01 lower at S$0.53.



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