SINGAPORE (Oct 28): CIMB Securities is upgrading its “hold” call to “add” on Singapore Post (Singpost) with a higher target price of S$1.76 as UOB Kay Hian and Maybank Kim Eng are reiterating their “buy” calls on the stock, both with price targets of S$1.77.
All three research houses have unanimously expressed positive views on Singpost’s recent announcement of its completed joint venture (JV) agreement with Alibaba in Quantium Solutions, which will allow both Singpost and Alibaba to grow their e-commerce logistics network.
They have also highlighted more to come with the Info-communications Media Development Authority’s (IMDA) granting of regulatory approval on Alibaba’s second investment in Singpost, to increase its stake in the postal service provider from 10.2% to 14.4%.
In a Thursday report, CIMB analyst Jessalynn Chen says the latest developments will bring “new firepower for [Singpost’s] investment in e-commerce logistics” and thus boost logistics earnings growth in the medium term.
“Assuming the entire S$86.2 million proceeds from the JV will be put into investments, SPOST would have S$223.9m at its disposal to invest in its e-commerce logistics network. We do not rule out further mergers and acquisitions (M&As) or local partnerships,” she elaborates.
However, Chen thinks there may be a gestation period before investments kick in, such that earnings growth from new investments will only begin to pick up from FY18 onwards.
CIMB has adjusted its FY17-19F earnings projections to factor in higher logistics revenue growth, higher margins on operational efficiency; a loss of 34% of Quantium's earnings; cash proceeds from the two Alibaba deals; and an enlarged share base.
UOB, on the other hand, now expects all eyes to be on Singpost’s dividend policy review, which is currently “underway to ensure sustainability, as well as linking it to underlying earnings”.
“While Singpost maintained its absolute dividend in 1QFY17, we believe a payout based on underlying net profit would be beneficial to SPOST’s transformation and integration journey as it allows sustainability and reinvestment on business for growth,” say UOB analysts Thai Wei Ying and Andrew Chow in a report on Friday.
The analysts have projected an annual dividend of 3.5-6.3 Singaporean cents based on FY17F earnings per share (EPS) of 7 cents, assuming an earnings-linked dividend policy.
UOB’s forecasts for the company’s earnings remain unchanged at a three-year net profit CAGR or 8.5% for FY17-19.
“We believe current valuation remains attractive as the value of its core mail and property businesses account for 94% of SPOST’s current value per share, which potentially suggests that logistics and e-commerce ventures are undervalued,” opine Thai and Chow.
Maybank analyst John Cheong, too, says the Alibaba deals should further strengthen the commitment between both parties and enable Singpost to capture more logistics businesses from Alibaba’s and Lazada’s online platform.
With the conclusion of the JV, clarity of the placement timeline and terms of the deals, Cheong says the overhang on Singpost’s share price should be lifted as previous concerns regarding the deal and business relationship between Singpost and Alibaba have now been addressed.
“The proceeds [from both deals] could help Singpost to expand its core business and pare down debt,” he adds.
As at 12:35 p.m., shares of Singpost are up 8 Singaporean cents at S$1.60.