Singapore Post&rsquo s Australian business had posted a revenue of S$574.8 million in the half year ending Sept 30, up from S$398.8 million a year earlier

 

Singapore Post said on Tuesday (Nov 26) it was in exclusive talks with a third party for a potential sale of its Australia business, while stating that no definitive deal has been reached.

 

The company&rsquo s Australia segment includes fourth-party logistics services, third-party logistics solutions including transportation and distribution, and last-mile courier delivery, as well as warehousing services.

 

Singapore Post had embarked on a restructuring process in May 2023, in a bid to bring back capital returns to shareholders.

 

The company bolstered its Australian presence in 2021 by increasing its stake in Freight Management Holdings, a last-mile parcel delivery service.

 

Continuing its expansion over the next three years, the Alibaba-backed company notably acquired Border Express, a pallet and parcel distribution operator, for A$210 million (S$183.5 million) in November, further strengthening its position in the Australian logistics market.

 

Singapore Post&rsquo s Australian business had posted a revenue of S$574.8 million in the half year ending Sept 30, up from S$398.8 million a year earlier. REUTERS

 

Over the past two years, the group has shuttered 12 post offices, leaving another 44 that are located at SLA properties, ground floors of HDB shophouses and other commercial setups such as malls

 

ON THE face of it, national postal service provider SINGAPORE Post (SingPost) : S08 +0.91% delivered an impressive improvement to its bottom line for the first half ended September.

 

For its H1 FY2025, the group posted earnings of S$22.6 million &ndash up 97.3 per cent.

 

But on closer inspection, SingPost could have reported a much higher profit, if not for the S$24.6 million it forked out in finance expenses.

 

The company&rsquo s earnings were similarly eroded the year before. In H1 FY2024, it incurred finance expenses of S$14.5 million, which left only S$11.5 million at the bottom line. 

 

SingPost&rsquo s borrowing costs had rocketed as a result of the additional loans taken out for its Australian business &ndash the acquisitions of Border Express and an additional stake in Freight Management Holdings.

 

Those loans were acquired through Australian dollar onshore borrowings Down Under at an interest rate of over 5 per cent.

 

The group&rsquo s non-current borrowings totalled about S$886.2 million as at end-September, while total liabilities were slightly under S$1.2 billion.

 

It also has S$250 million of perpetual securities &ndash not considered a debt in accounting terms &ndash which distributes over S$10.8 million in payment annually at an interest rate of 4.35 per cent.

 

Notably, the group had S$428.4 million in cash as at end-September.

 

In March, the group said that it would divest non-core assets and businesses, including the retail-commercial mixed development SingPost Centre, which was valued S$1.1 billion as at September 2023.

 

Over the past two years, the group has shuttered 12 post offices, leaving another 44 that are located at Singapore Land Authority (SLA) properties, ground floors of Housing and Development Board (HDB) shophouses and other commercial setups such as malls. 

 

Of these, the group owns more than half &ndash all of those housed at SLA premises and the majority of the HDB shophouses &ndash and carry most of them under property, plant and equipment, and generally at cost in its book.

 

Vincent Phang, group chief executive of SingPost, had said at a recent analyst briefing that he expects the number of post office branches to be &ldquo significantly smaller&rdquo after finalising the operating model with the authority.

 

Many of those SLA properties are designated for postal use, and conversion of use may not be granted or would require payment of a land premium. However, the HDB properties are for commercial uses and are readily available for sale.

 

This means the group would likely be able to record profits from the valuation uplift and cash inflows upon divesting the real estate, especially those at the HDB shophouses.

 

Interest rates are unlikely to drop drastically in the near future. In view of the amount it has to fork out to make interest payments, SingPost should expedite its divestment of these non-core properties, and use the proceeds to quickly bring down its high debt level.

 

To be fair, Phang had said that the &ldquo first order of the day would be to pare down&rdquo borrowings. But it appears that the group is waiting for the strategic review of its Australian business to finish.

 

Its management has cautioned that no decision has been made as the review has not been concluded, in response to media reports that there was interest to acquire all of the Australian business.

 

Vincent Yik, group chief financial officer, had told analysts that by using the same currency proceeds to pare down the Australian debt, SingPost would be able to enjoy zero foreign exchange loss. There would also be tax savings, given the tax rate is significantly higher there compared to in Singapore.

 

But are these benefits enough to offset the rise in finance expenses?

 

The group has classified the Australian investment &ndash which contributed to 59 per cent of its operating profit in H1 FY2025 &ndash as one of its three key pillars.

 

Thus, divestment of anything other than a minority stake makes one question the importance SingPost has placed on that market.

 

It will also negate the efforts it has put in to build the business there, particularly when it had taken on additional borrowings as recently as March to buy Border Express and buy out Freight Management Holdings last December.

The stock is trading at around 15.8 times based on FY2026 estimates, which analyst Jarick Seet highlights to be below its global peers&rsquo average of 19.8 times

 

MAYBANK Securities has initiated coverage on Singapore Post (SingPost) with a &ldquo buy&rdquo call and a S$0.74 target price after applying a 15 per cent holding discount to its sum-of-the-parts valuation of the group at S$0.86 per share. 

 

In a report on Monday (Nov 25), analyst Jarick Seet said he viewed the group as &ldquo deeply undervalued&rdquo considering its current net assets which could result in higher profitability and dividends if the group should decide to sell them over the next few years. 

 

Based on SingPost&rsquo s recent share price levels, the stock is trading at around 15.8 times based on FY2026 estimates, which Seet highlighted to be below its global peers&rsquo average of 19.8 times. 

 

In particular, the analyst said he sees significant value in SingPost&rsquo s potential sale of Famous Holdings and its Australian business, as well as SingPost Centre and post offices over the next one to two years. 

 

The expected sale of its freight-forwarding business could also generate about S$900 million to S$1.1 billion of proceeds, noted the analyst, who said that this would &ldquo significantly reduce finance costs and bump up future profitability&rdquo for the group. 

 

Earlier in June this year, SingPost and SMRT&rsquo s business arm, Stellar Lifestyle, announced launching a postal collection pilot project as part of their memorandum of understanding to explore deploying more postal service points near MRT stations.

 

Seet further speculated that SingPost could reduce its post office locations to further lower costs amid the ongoing review of its operating model. 

 

A merger between the group&rsquo s SingPost centre mailing services and its logistics centre at Tampines Logistics Park could also result in the closure of SingPost centre, which Seet estimates to be valued at around S$1.2 billion. 

 

&ldquo As a result, any of these asset sales will bring in significant cash returns to shareholders and also increase profitability if debt was pared down,&rdquo added the analyst.