Brokers’ take: OCBC raises SingPost’s fair value to S$0.555, awaits structural solution

OCBC Investment Research has increased its fair-value estimate for Singapore Post : S08 0% (SingPost) to S$0.555 from S$0.54, following the national postal-service provider’s update of its H1 financials on Thursday (Nov 2).

The revised fair value came with a “buy” rating, as the research house recognised SingPost’s healthy underlying growth, despite external headwinds from the normalisation of freight-forwarding rates and unfavourable foreign-exchange fluctuations.

While the increase of domestic postage rates is expected to at least drive the post and parcel business to break-even, as guided by SingPost’s management, the research house regards it as a temporary measure.

OCBC analyst Ada Lim said that longer-term, structural solutions are needed to address the structural weaknesses of SingPost’s postal business in Singapore: “We await further clarity on the results of SingPost’s discussions with the Infocomm Media Development Authority to ensure the long-term sustainability of its domestic post and parcel business, as well as the outcome of its ongoing strategic review.”

She noted that the fundamentals of the rest of SingPost’s business remain healthy, and that the logistics segment is likely to remain the key growth driver.

On a constant-currency basis, SingPost’s Australia’s business would have reported an 11 per cent yearly growth.

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Excluding the impact of the normalisation of sea-freight rates, SingPost’s logistics business would have registered an additional 26 per cent rise in operating profit, which was actually down on the year.

As at midday market break on Friday, shares of SingPost were trading up 4.3 per cent, or S$0.02, to S$0.48.