SingPost is making more headway in its quest to slash debt and reinvent itself. Last week, it said that it is in exclusive talks for a potential sale of its Australian business, though nothing definitive has been reached. 

 

The postal services provider has been focused on getting leaner in recent years, closing 12 post offices and identifying non-core businesses in a strategic review that concluded in March. As part of the weight-shedding, it plans to sell SingPost Centre at Paya Lebar Central, a non-core asset valued at S$1.1 billion as of September last year.

 

Also, the potential sale of its freight forwarder unit, Famous Holdings &ndash which SingPost has identified as a non-core asset &ndash could unlock about S$900 million to S$1.1 billion of proceeds, a Maybank Securities report said last week. The report, which initiated coverage on the stock with a &ldquo buy&rdquo rating and a S$0.74 target price, deemed SingPost &ldquo deeply undervalued&rdquo . SingPost&rsquo s counter closed at S$0.58 last Friday.

 

While the market celebrated the potential divestment of the Australian segment, there is some irony in this development. A sale Down Under will help SingPost pare its debt and interest expenses, but it was its expansion in the Australian market that had contributed to its growing loan obligations.  

 

At the same time, its acquisitions there were key to its pivot towards global logistics. Already, SingPost&rsquo s Australian interests account for 59 per cent of its operating profit in H1 FY2025, providing much of the growth in revenue. 

 

The market will now keenly watch which of its Australian units and how much of them it will sell. As BT&rsquo s Tay Peck Gek noted in a Hock Lock Siew piece last week, selling anything other than a minority stake in its Australian ventures will negate the work it has put into growing its business there.

 

Balance sheet aside, SingPost faces a larger and more fundamental existential conundrum. It is no longer a public utility provider, as its CEO Vincent Phang noted. However, it continues to have the trappings of one.

 

It is Singapore&rsquo s only public postal licensee and must incur costs to keep up service standards. It also needs the government&rsquo s approval to raise postage rates, which it did last October. Even so, the last major rate hike was in 2014.

 

Last year, BT&rsquo s Ben Paul had reckoned in a Mark to Market column that the boost from rate hikes would be a temporary one. &ldquo The higher postage rates will do nothing to halt the decline in postal volumes,&rdquo he&rsquo d said. From FY2019 to FY2023, SingPost&rsquo s mail volumes fell by more than 40 per cent. 

 

S& P Global Ratings, however, said in an update this year that the higher rates and improving e-commerce volume mean that the domestic postal sector is &ldquo no longer a drag&rdquo on SingPost. The credit ratings agency has a &ldquo BBB&rdquo rating and negative outlook on the company.

 

For SingPost&rsquo s latest half-year earnings period, revenue from Singapore was up thanks to the higher rates, but one-off costs and the continued decline in letter mail volume tugged the unit&rsquo s bottom line into a S$900,000 operating loss &ndash albeit a much smaller one compared with its previous loss of S$14.7 million.

 

The group is hammering out an operating model with the authorities to &ldquo ensure the long-term commercial viability of postal services&rdquo , it said earlier this month. For now, the focus appears to be on its post office network, with the number of branches set to be &ldquo significantly smaller&rdquo , chief executive Phang said at a recent analyst briefing.

 

It is a little soon to tell, but these moves hardly sound like the seismic changes that BT&rsquo s columnists have previously mooted, from letting SingPost revise its own rates annually to having a full or partial nationalisation of its domestic obligations. 

 

Regardless, SingPost&rsquo s inbox is pretty full it has given itself three years to reduce debt, scale up in a competitive Australian market and re-engineer its local postal network, among other things. 

 

The postman&rsquo s snow, rain and heat must be looking pretty good right now.

Its Australia segment includes fourth-party logistics services, third-party logistics solutions and last-mile courier delivery

 

Shares of Singapore Post (SingPost) : S08 +4.5% were heavily traded on Wednesday (Nov 27) following &ldquo exclusive talks&rdquo of the potential sale of its Australian business. 

 

The counter gained 0.9 per cent or S$0.005 to S$0.56 shortly after the market opened. At the midday trading break, the stock had traded up by 4.5 per cent or S$0.025 to S$0.58, with 19.8 million securities changing hands. 

 

As at 1.10 pm, the group&rsquo s share price was up 3.6 per cent or S$0.02 to S$0.575. 

 

SingPost&rsquo s Australia segment includes fourth-party logistics services, third-party logistics solutions including transportation and distribution, and last-mile courier delivery, in addition to warehousing services. 

 

The group&rsquo s Australian business logged a revenue of S$574.8 million for the half year ended Sep 30, up from S$398.8 million a year earlier.

 

In May 2023, SingPost ​ ​ embarked on a restructuring process, with the intention of bringing back capital returns to shareholders.

 

Based on a Maybank Securities report by analyst Jarick Seet that was issued on Monday, the group was viewed to be &ldquo deeply undervalued&rdquo . 

 

According to SingPost&rsquo s recent share price levels, the stock was 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. 

On the whole, SingPost&rsquo s net profit for the first half ended September nearly doubled to S$22.6 million on higher revenue, up 97.3 per cent from S$11.5 million in H1 FY2023. Group revenue rose 20 per cent to S$992.4 million from S$827.3 million a year prior.

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.