CGS International is reiterating its &ldquo add&rdquo recommendation on Singpore Post (SingPost) with a lower target price of 60 cents from 63 cents previously, as analyst Ong Khang Chuen sees strong EPS growth of 67% in FY2025from the consolidation of Border Express and stake increases in Freight Management Holdings and recovery in domestic post and parcel business.

 

This Aug 19 report comes on the back of the group releasing its 1QFY2025 business update, which saw group operating profit gaining 105.2% y-o-y to 24.4 million, on the back of a 22.4% y-o-y increase in group revenue to $494.8 million.

 

The revenue growth was supported by growth in the Australia and Singapore businesses, outweighing declines in the International and freight forwarding businesses which continued to be impacted by challenging business conditions.

 

1QFY2025 operating profit or Ebit formed 19%/20% of CGS/Bloomberg consensus for FY2025, roughly in line with expectations.

 

Ong sees Australia as a bring spot for the group. Aside from full-quarter contribution from newly-acquired Borders Express, SingPost&rsquo s organic business in Australia performed steadily despite weak consumer sentiment, with improvements in its 4PL segment offsetting the softness in its 3PL business.

 

Border Express delivered revenue/EBIT growth of 5%/24% y-o-y in 1QFY2025, driven by new customer acquisitions and strong cost control. SingPost is currently going through integration planning amongst its Australian entities. &ldquo We see room for revenue and cost synergies (potentially lifting its Australian business operating profit margins by up to 2 percentage points) within the next two years. SingPost is currently reviewing strategic options for its Australia business (including strategic stake sale, IPO etc.), which it expects will be completed by end of the year,&rdquo says Ong.

 

Meanwhile in Singapore, postage rate hikes have provided some support to the group. Singapore revenue and profits both grew y-o-y in 1QFY2025, with increased ecommerce volumes and higher postage rate offsetting declines in letter mail volumes. Despite significant postage rate hike in October 2023, the letter mail volume decline was limited at -8% y-o-y in 1QFY2025.

 

&ldquo SingPost remains in talks with the government on future operating model to reduce reliance on physical post office branches,&rdquo notes Ong.

 

International segment remains the weak spot with volumes down 24% y-o-y in 1QFY2025 amid a competitive business environment. The group remains focused on maintaining profitability and protecting margins here.

Its property revenue rises on higher rental income, despite dip in occupancy rate

 

SINGAPORE Post (SingPost) on Friday (Aug 16) announced a first-quarter operating profit of S$24.4 million, up 105.2 per cent from S$11.9 million in the corresponding period of the previous year.

 

Revenue rose 22.4 per cent on the year to S$494.8 million, from S$404.1 million previously.

 

Additionally, operating expenses rose 20.1 per cent year on year to S$470.7 million, from S$391.9 million.

 

The national postal-service provider said the rise in revenue was supported by growth in its Australia and Singapore businesses, which outweighed declines in the group&rsquo s international and freight-forwarding businesses.

 

The global e-commerce logistics market remained challenging, while volatility in air-conveyance costs and geopolitical developments weighed on its international business, it added.

 

Property revenue rose on higher rental income from SingPost Centre. As at Jun 30, the occupancy rate at the site was 96 per cent, a dip from 96.2 per cent.

 

In the Republic, the group&rsquo s revenue was boosted by higher e-commerce volumes and postage rates.

 

This came even as letter-mail volumes continued to fall, and the post office network remained in the red. In Singapore, letter mail and printed-paper volumes fell 8.1 per cent on the year to 87.8 million items, from 95.6 million items.

 

The group, however, noted that its Singapore business posted a profit in the first quarter, compared to a loss previously.

 

SingPost said it is &ldquo engaging with the government on a future operating model for postal services designed to lower costs, broaden service accessibility for the public and improve customer experience&rdquo .

 

Meanwhile, the group&rsquo s performance in Australia strengthened, following the consolidation of Border Express.

 

The distribution business in Australia posted a 5.3 per cent year-on-year growth in revenue on new customer acquisitions, and a 24.4 per cent rise in operating profit on the year due to better cost management.

 

The group appointed Merrill Lynch Markets Australia as advisers to its business in the country. The review, which was announced in June, is forecast to be concluded by the end of 2024.

 

This is part of the group&rsquo s plans to achieve scale in the country by exploring near-term partnerships that can contribute to growth, providing equity to deleverage acquisition debt, and creating an independent valuation benchmark.

 

The group said it is actively looking to monetise its non-core assets, and diversify revenue streams amid a challenging international operating environment.