Singapore Post (SingPost) is making progress in its transformation into a regional logistics enterprise. Group CFO Vincent Yik says SingPost achieved a &ldquo good set&rdquo of results in a &ldquo pretty challenging&rdquo business environment when economies are slowing and inflationary pressures are staying high amid geopolitical uncertainties.

 

In FY2024 ended March 31, SingPost&rsquo s earnings surged 217.4% y-o-y to $78.3 million, mainly due to the exceptional gain of $36.8 million on property revaluation.

 

The bulk of the gain came from the fair value gain of SingPost Centre, which managed to fetch higher rental rates even with slightly lower occupancy. In contrast, SingPost had booked a fair value loss of $7.7 million in FY2023.

 

SingPost Centre, one of the three malls adjacent to the busy Paya Lebar MRT Station, is now valued at just above $1.1 billion, says Yik.

 

A higher valuation of SingPost Centre puts SingPost in better stead when it eventually monetises this asset, which has been talked about by the market for years and has picked up steam in recent quarters as the company lays down its strategy of divesting what it considers non-core assets to fund the growth of its logistics business.

 

Coping with forex

Although SingPost&rsquo s FY2024 revenue fell 9.9% y-o-y to $1.69 billion, the various business segments &mdash logistics, post & parcel and property &mdash saw broad-based growth. A 37% y-o-y drop in the revenue of its freight forwarder unit Famous Holdings weighed down the top line, no thanks to lower rates across the industry.

 

Nonetheless, SingPost&rsquo s underlying net profit for FY2024 increased 28.1% y-o-y to $41.5 million, with higher contributions from its various key segments. SingPost also saw an estimated foreign currency impact of about $73 million as the Australian dollar weakened 6%&ndash 7% against Singdollar, the reporting currency.

 

Yik warns that forex will always have an impact on SingPost&rsquo s consolidated performance, given its vastly transformed revenue and earnings profile. From a largely domestic business, SingPost today generates 80% of its revenue outside Singapore, with particularly heavy exposure to the Australian dollar and the renminbi.

 

What SingPost tries to do is to make sure its revenue and cost are in the same currency. &ldquo We do that fairly well we make sure that whatever we earn in Australia, we spend it there and we keep there, so net exposure is significantly smaller,&rdquo says Yik, adding that in the context of total revenue of $1.3 billion, the $73 million impact is &ldquo not very big&rdquo .

 

Operating profit, which fell by 8.9% y-o-y to $84.9 million, was also due to lower contributions from Famous Holdings and a currency impact of about $14 million. All in, SingPost&rsquo s underlying net profit for FY2024 stood at $41.5 million, 28.1% higher y-o-y.

 

The board has recommended a final dividend of 0.56 cents per share, bringing SingPost&rsquo s total dividends for FY2024 to 0.74 cents per share, or 40% of the underlying net profit. In FY2023, SingPost paid total dividends of 0.58 cents.

 

Validation of transformation

Speaking at the results briefing on May 10, SingPost group CEO Vincent Phang says the near-term results can be seen as &ldquo the first step of validating the transformation from a postal organisation to an international logistics enterprise&rdquo .

 

According to Phang, SingPost&rsquo s improved performance in its core businesses was partly thanks to the acquisition of Australian-based Border Express, which it had acquired for up to A$210 million ($183 million) in November 2023.

 

The review of SingPost&rsquo s domestic postal business was also &ldquo critical&rdquo to resolve the &ldquo structural problem&rdquo which required near- and longer-term solutions, says Phang. He adds that the adjustment of Singapore&rsquo s postal rates from 31 cents to 51 cents since last October was &ldquo necessary&rdquo and has stabilised the company&rsquo s domestic postal business. Having won the nod to charge higher postal rates, Phang is trying to rationalise the network of post offices, which incur hefty operating costs.

 

On the whole, Phang notes that SingPost&rsquo s Singapore business has &ldquo performed well&rdquo due to &ldquo significant e-commerce growth&rdquo and an increase in postage fees. In FY2024, SingPost&rsquo s e-commerce delivery volumes increased 49% y-o-y.

 

With revenue from e-commerce now making up 41% of SingPost&rsquo s Singapore business, which is nearly on par with the 47% revenue contribution from its letter mail & printed papers as at March 31, Phang sees the growth in e-commerce as an opportunity to replace letter mail in the near term.

 

He adds that the differentiation is a &ldquo great outcome&rdquo for SingPost given revenue from letters was a much bigger contributor a few years ago.

 

Capital management plans

For the year to May 13, SingPost shares have held steady at 47 cents. However, Phang says the share price at this level does not &ldquo appropriately&rdquo reflect the company&rsquo s intrinsic value. As at March 31, SingPost&rsquo s net asset value (NAV) stood at 61.49 cents.

 

He also stressed that capital management remains a key focus, a point which was discussed in SingPost&rsquo s strategic review in March. These included divesting non-core assets or businesses and recycling the proceeds to pare debt or invest in new growth areas.

 

SingPost has conducted a &ldquo fairly extensive review&rdquo of its portfolio although none of the transactions have been finalised, says CFO Yik at the briefing.

 

Apart from SingPost Centre, Famous Holdings was also identified as a non-core asset, even though the business is still contributing to SingPost&rsquo s top and bottom lines.

 

&ldquo Famous Holdings &hellip has come off the pandemic highs when it contributed significantly,&rdquo says Phang. &ldquo And we do see that unwinding. It&rsquo s a lot more &hellip normalised with the long-term rates that we see. We&rsquo re still happy with it as it certainly is contributing but as I said, we have during the strategic review also identified that as a non-core asset.&rdquo

 

&ldquo That&rsquo s something that we will progress accordingly. If it&rsquo s on the non-core list, we will treat it as a non-core option,&rdquo says Phang.

 

Analysts keep &lsquo buy&rsquo calls

Analysts have continued to keep their &ldquo buy&rdquo calls on SingPost after its FY2024 results.

 

OCBC Investment Research analyst Ada Lim has kept her target price at 55.5 cents after SingPost&rsquo s FY2024 results met her expectations. While this was due to the exceptional fair value gain on SingPost Centre, the analyst also notes that the freight forwarding and international post & parcel (IPP) businesses were the main detractors. Foreign exchange (forex) headwinds also &ldquo played a role&rdquo .

 

&ldquo With digitalisation exacerbating the global decline in letter mail volumes, SingPost has been hamstrung by its national duty to provide quality postal services and rising costs of maintaining the domestic postal network,&rdquo Lim writes in her May 10 report.

 

&ldquo Following the increase in domestic postage rates in October 2023, which is expected to ease the drag from its domestic post & parcel (DPP) business from 2HFY2024 onwards, we await further clarity on the results of SingPost&rsquo s discussions with the Infocomm Media Development Authority (IMDA) to ensure the long-term sustainability of its postal network,&rdquo she adds.

 

Meanwhile, UOB Kay Hian analyst Llelleythan Tan has increased his target price to 61 cents from 54 cents after SingPost&rsquo s FY2024 stood slightly above his expectations.

 

Other positives include SingPost&rsquo s post & parcel business, which turned profitable again driven by a better IPP revenue mix. The IPP sub-segment registered higher margins and profit contributions thanks to lower air conveyance costs, better cost management and most importantly, a ramp-up in the higher-margin commercial cross-border operations.

 

&ldquo As mentioned in our previous update, we expected this segment to ramp up moving forward, and it has now seen its revenue share increase to 35% of overall IPP revenue at end-FY2024,&rdquo Tan writes in his May 13 report.

 

&ldquo Backed by a higher-margin revenue mix along with softening air freight rates, we opine that earnings from the IPP sub-segment have bottomed out and would continue its upward momentum moving forward. Based on our estimates, FY2024 IPP operating profit is around $6 million to $8 million,&rdquo he adds.

 

The analyst also anticipates Border Express to &ldquo significantly boost&rdquo its segmental annual operating profit by around $35 million to $40 million after the company&rsquo s one-month contribution of around $2.5 million in FY2024.

 

For FY2025, Tan has upped his patmi estimate to $71 million from $69.9 million but has lowered his estimate to $81.2 million from $94.2 million in FY2026.

 

&ldquo Based on our sum-of-the-parts (SOTP) valuation, we value the property and post & parcel segment at $844 million and $245 million respectively. Given that SingPost&rsquo s current market cap is around $1.06 billion, we think the market is severely undervaluing the logistics segment,&rdquo says Tan. &ldquo At our target price, SingPost trades at 19 times FY2025 P/E, slightly above &ndash 1 standard deviation to its long-term mean.&rdquo

 

Writing in his May 13 note, Ong Khang Chuen of CGS International is similarly bullish. The underlying earnings beat his expectations, and with the Australia-based logistics businesses gaining &ldquo good scale&rdquo , Ong believes SingPost has plenty of levers to pull to optimise its margins and thereby pave the runway for &ldquo good&rdquo earnings recovery in the coming FY2025 and FY2026. Besides keeping his &ldquo add&rdquo call, Ong has raised his target price to 63 cents from 58 cents.

CEO of SingPost International envisions easily-transcended borders with seamless deliveries in the future

 

SINGAPORE Post (SingPost) and the largest provider of postal services in Lithuania, Lietuvos pa&scaron tas (Lithuania Post), will collaborate to explore opportunities in postal and express delivery sectors, after signing a memorandum of understanding (MOU) on May 8.

 

The MOU outlines several areas of collaboration including the exploration of new solutions for e-commerce and international parcel flows.

 

&ldquo The goal is to expand service offerings, enhance service quality, and meet evolving customer needs,&rdquo said both logistics giants in a joint release on Tuesday (May 14).

 

SingPost and Lithuania Post will also strengthen mutual support with the global postal network, the Universal Postal Union and relevant international postal organisations to advocate for policies and practices that benefit the wider postal community under the MOU.

 

Li Yu, chief executive officer of SingPost international, said borders should be easily transcended in the future with seamless and reliable deliveries.

 

&ldquo This MOU signifies a commitment to explore innovative solutions that will benefit our customers, our businesses, and chart new paths of cooperation based on mutual benefit and trust,&rdquo said Li.

 

On top of sharing expertise, SingPost and Lithuania Post will cooperate on understanding postal laws and regulations, universal postal services and market supervision to explore potential cooperation opportunities.

 

The signing ceremony took place in Singapore in the presence of senior representatives from SingPost and Lithuania including Marius Skuodis, Minister of Transport and Communications of the Republic of Lithuania, Darius Gaidys, Ambassador of the Republic of Lithuania to Singapore and Rolandas Zukas, CEO of Lithuania Post.

This is despite revenue falling 5.9 per cent to S$859.5 million

 

THE net profit of Singapore Post (SingPost : S08 0%) in its second half ended March rose 93.4 per cent to S$66.9 million from S$34.6 million the year before.

 

This resulted in earnings per share (EPS) of S$0.0273 for the second half, up from S$0.013 in H2 FY2023.

 

Including distribution to holders of its perpetual securities, EPS for the period stood at S$0.0297, up from S$0.0154 a year prior.

 

The group proposed a final dividend of S$0.0056 per share, amounting to S$12.6 million for the financial year, up 40 per cent from a per-share dividend of S$0.004 for the same period in the year earlier. 

 

Including its interim dividend of S$0.0018 per share paid out last November, total dividends amount to S$0.0074 per share, representing 40 per cent of the group&rsquo s underlying net profit. 

 

Revenue for H2 FY2024 declined 5.9 per cent to S$859.5 million, which the postal services provider on Friday (May 10) attributed largely to reduced sea freight revenues.

 

The group&rsquo s bottom line was buoyed by S$38.8 million in exceptional gains, which were up 138.7 per cent year on year, mainly due to a fair-value gain on SingPost Centre.

 

SingPost said it is considering divesting the S$1.1 billion building, which a strategic review recently designated as a non-core asset. 

 

During a media briefing after the results were posted, group chief financial officer Vincent Yik noted that the building has been largely carried at valuation, hence the valuation uplift.

 

Operating expenses for the period fell 6.2 per cent to S$809 million, while operating profit rose 3.3 per cent to S$53.5 million for the second half of the fiscal year.

 

Core business fundamentals

For the full year, SingPost&rsquo s net profit grew 217.4 per cent to S$78.3 million versus S$24.7 million in FY2023.

 

Revenue slid 9.9 per cent on the year to S$1.7 billion, which SingPost largely attributed to the reduction in sea freight revenues.

 

Yik noted that adverse currency movements also hit the company&rsquo s top line. For the full year, the estimated impact on revenue was just above S$70 million, and above S$14 million for operating profit.

 

To hedge the currency risks, SingPost ensures its revenue and costs are in the same currency. For example, in Australia, the company funds expenses with local debt, as opposed to raising equity.

 

The Australia business, which deals with delivery services and e-commerce logistics solutions, generated around half the group&rsquo s revenue for FY2023. It also has businesses in Japan, Hong Kong, Europe and New Zealand.

 

Yik said this risk comes with an exposure to international business. &ldquo The revenue and operating profit we gain from moving to (the Australian market) is far bigger than the costs that we will incur,&rdquo he noted.

 

The group nonetheless said operating fundamentals of its core business have improved for the year, though operating profit declined 8.8 per cent to S$84.9 million due to lower operating profit contributions from its subsidiary, Famous Holdings.

 

In Singapore, the October 2023 postage rate hike and e-commerce growth have been significant business drivers.

 

Total e-commerce volumes in the Republic rose 11 per cent year on year. The logistics for e-commerce segment now contributes 41 per cent of its Singapore revenue, comparable with logistics for letter-mail and printed papers, which stands at 47 per cent.

 

Group chief executive Vincent Phang said the e-commerce segment now represents a &ldquo tangible opportunity&rdquo in the replacement of letter-mail in the near term, with e-commerce touchpoints &ndash through which customers can send and pick up online orders &ndash likely to become &ldquo more pervasive&rdquo in time.

 

In its outlook, the group said the economic and business landscape &ldquo continues to be marked by ongoing challenges&rdquo of slower global trade, inflationary pressures and geopolitical tensions.

 

Phang said: &ldquo Our transformation continues to yield results in our core businesses as we execute our strategy.&rdquo

 

OCBC Investment Research has increased its fair-value estimate for Singapore Post : S08 +4.35% (SingPost) to S$0.555 from S$0.54, following the national postal-service provider&rsquo s update of its H1 financials on Thursday (Nov 2).

 

The revised fair value came with a &ldquo buy&rdquo rating, as the research house recognised SingPost&rsquo s healthy underlying growth, despite external headwinds from the normalisation of freight-forwarding rates and unfavourable foreign-exchange fluctuations.

 

While the increase of domestic postage rates is expected to at least drive the post and parcel business to break-even, as guided by SingPost&rsquo s management, the research house regards it as a temporary measure.

 

OCBC analyst Ada Lim said that longer-term, structural solutions are needed to address the structural weaknesses of SingPost&rsquo s postal business in Singapore: &ldquo We await further clarity on the results of SingPost&rsquo s discussions with the Infocomm Media Development Authority to ensure the long-term sustainability of its domestic post and parcel business, as well as the outcome of its ongoing strategic review.&rdquo

 

She noted that the fundamentals of the rest of SingPost&rsquo s business remain healthy, and that the logistics segment is likely to remain the key growth driver.

 

On a constant-currency basis, SingPost&rsquo s Australia&rsquo s business would have reported an 11 per cent yearly growth.

Excluding the impact of the normalisation of sea-freight rates, SingPost&rsquo s logistics business would have registered an additional 26 per cent rise in operating profit, which was actually down on the year.