Broker's take: DBS downgrades SingPost to 'fully valued', lowers FY21/22 forecast

DBS Group Research has downgraded Singapore Post (SingPost) to "fully valued" from "hold", with a revised target price of S$0.64 from S$0.85 previously.

The national postal service provider shares were trading at 76.5 Singapore cents as at 10.15am on Monday, up 2.5 cents or 3.4 per cent.

Analysts Sachin Mittal and Lim Rui Wen have also lowered their earnings forecasts for SingPost by 20 per cent for FY2021 and 19 per cent for FY2022 on margin concerns, according to a research note on Monday.

They are projecting a 13 per cent drop in SingPost's operating profit forecast for the 2021 financial year, compared with previous a forecast of 3 per cent growth.

This is followed by a 4 per cent growth in their fiscal 2022 forecast, compared with a previous forecast of 3 per cent.

The downgrade comes amid an "accelerated decline" in high-margin domestic mail revenue - which comprises the bulk of SingPost's operating profit - due to the Covid-19 situation.

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"This is a structural shift in our view," the analysts added.

Although cross-border e-commerce related deliveries are likely to see accelerated growth in the second half of fiscal 2021's forecast, the thin margins might not be enough to stabilise SingPost's operating profit. This is after taking into account higher terminal dues from January 2020 onwards.