Brokers’ take: Maybank says S&P’s credit watch negative on SingPost is ‘irrelevant’, maintains ‘buy’

The group’s equity story remains compelling and will gain from restructuring, says analyst

MAYBANK securities continues on with its “buy” call on Singapore Post (SingPost), with a target price of S$0.77.

On Monday (Dec 9), analyst Jarick Seet said he found the CreditWatch negative label by global ratings’ agency S&P on SingPost “irrelevant”. He also said that the group’s equity story remains compelling and is still in line to gain from restructuring.

Last Thursday, S&P placed SingPost on CreditWatch negative, following a change in its future strategy and the sale of its Australian business.

This divestment is at an enterprise value of A$1 billion (S$870 million) as part of the outcome of a strategic review.

The national postal service provider will receive actual cash proceeds of A$775.9 million and generate a gain on disposal of about S$312.1 million, subject to adjustments determined at the time the deal is completed. The buyer is Pacific Equity Partners, an Australia-headquartered private equity fund, SingPost said.

To S&P, SingPost’s move to sell its Australian business would mark a loss of a key earnings pillar and introduce uncertainty over the company’s future strategy and earnings contribution.

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In Seet’s view, however, SingPost’s cash position will be bumped to S$1.3 billion after the sale, more than the existing S$1.1 billion debt.

He said that further non-core assets will be monetised and debt would likely be pared down in the near term following further asset sales.

“We believe the focus should be on further monetisation with special dividends as the reward,” said the analyst.

Shares of SingPost were trading at S$0.58, up 0.9 per cent or S$0.005, as at 11.46 am on Monday.

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