CGS-CIMB upgrades Singapore Post on plans to exit US businesses

Singapore Post post boxes at the SingPost mCentre March 2018.Singapore Post post boxes.

CGS-CIMB upgraded  Singapore Post, or SingPost, to Add from Hold on the postal and logistics company’s plan to exit its U.S. e-commerce businesses.

Singapore Post said last week that after completing a strategic review, it planned to sell its U.S. e-commerce businesses Jagged Peak and TradeGlobal.

The brokerage said in a note last week that the divestment “provides substantial relief” to SingPost’s bottomline, noting the U.S. operations posted a fiscal nine-month 2019 operating loss of S$33.9 million, wider than the S$12.8 million operating loss for the year-earlier period.

“A combination of intensifying competition and customer bankruptcies have resulted in widening losses over the past quarters despite revenue growth, suggesting that the U.S. operations have yet to achieve optimal scale and operating leverage, with a turnaround likely to be costly and longer than expected,” CGS-CIMB said.

It projected the divestment would be completed in fiscal 2020 and estimated the U.S. e-commerce business could be worth at least S$70 million to S$80 million.

CGS-CIMB raised its fiscal 2020-21 earnings per share (EPS) forecasts by 4.9 percent to 17.9 percent, citing the removal of the earnings drag, as well as improved profitability at logistics operations, although it expected lower postal margins.

It raised its target price to S$1.20 from S$1.03, pointing to expectations of a higher dividend this year.

The stock also likely has limited downside as recent negative news has already been priced in, the note said.

Among the factors weighing the stock have been intensifying competition in North Asia, which weighed logistics profitability, terminal dues changes on international mail, and fines in Singapore for service standard lapses for domestic mail, the note said.

The brokerage also pointed to re-rating catalysts ahead: The postal carrier can leverage on its partnership with Alibaba to expand its volumes and margins and there could be potential acquisitions to support its e-commerce strategy, with a focus on Asia and Southeast Asia.

The stock ended Monday at S$1.05, up 1.94 percent.

Follow Shenton Wire on Telegram

Get the Shenton Wire morning briefing in your inbox