• SingPost (SGX:S08)’s raised stake in Freight Management Holdings (FMH) could result in 5% EPS accretion for FY23F. Deal also includes a phased pathway for SingPost to fully acquire FMH.
• Singapore’s border reopening should also aid SingPost’s earnings recovery in 2HFY22F, as conveyance costs could ease with more flights through Changi.
• Reiterate ADD rating on SingPost. SingPost's valuation undemanding at 1.1 standard deviation below mean, while backed by S$201m net cash and S$1bn investment properties.

SingPost Announced Further Investment Into Australia

• On Friday, SingPost announced that it has brought forward its stake increase in Freight Management Holdings (FMH), a leading fourth-party logistics service company in Australia. With the latest deal, SingPost’s stake in FMH will be raised to 51% (from 28%), at a cash consideration of A$112.7m. Implied valuation for the cumulative stake is a trailing EV/EBITDA of 11.4x, or a P/E of 18.4x (assuming a 30% corporate tax rate), which we believe is reasonable, considering the 13%/29% y-o-y growth in EBITDA/PBT of FMH over the past year.
• We expect the deal to result in a ~5% EPS accretion for FY23F (April 2022 to March 2023). SingPost's management cited FMH’s stronger-than-expected performance following the initial stake acquisition last year as part of the rationale for stake increase. We believe the deal also reaffirms SingPost's intention to build Australia into its second home market, as well as transform itself into a leading e-commerce logistics solutions provider in the region.
• Australia has grown to become SingPost’s second-largest revenue contributor by geography, representing 18% of FY21 revenue (up from 13% in FY20). We see potential for more M&As in Australia ahead.

A Beneficiary of Singapore’s Border Reopening

• SingPost is also set to benefit from Singapore’s hit by COVID-19, with operating profit declining 64% y-o-y in FY21.

Reiterate ADD Rating on SingPost

• Reiterate ADD on SingPost; we think its risk-reward profile is based on 18.8x CY22F P/E (0.5 standard deviation below historical average).

• Potential catalysts include earnings-accretive M&As and greater visibility on border opening. Monetisation of its real estate portfolio (~S$1bn) could also be a longer-term catalyst.
• Downside risks include intensifying competition.

Source: CGS-CIMB Research - 11 Oct 2021