The group may just continue to muddle along, occasionally tapping its balance sheet to invest in new businesses, but ultimately failing to garner a much higher market valuation

 

[SINGAPORE] At Singapore Post&rsquo s (SingPost) annual general meeting (AGM) on Jul 23, its outgoing chairman Simon Israel hailed the divestment of the group&rsquo s Australian logistics business, Freight Management Holdings (FMH). 

 

Completed in March, the transaction pegged FMH&rsquo s enterprise value at A$1.02 billion (S$897.6 million), and saw SingPost rake in gross proceeds of approximately A$781.5 million. This week, on Aug 14, SingPost will pay a special dividend of S$0.09 per share &ndash representing two-thirds of the reported gain on disposal of S$302.1 million from the deal.

 

&ldquo Looking back, the timing of this transaction has served us well,&rdquo Israel said, in a speech at the AGM. 

 

&ldquo In today&rsquo s prevailing market conditions, we may not have been able to achieve the same valuation, or perhaps we may not have been able to conclude a transaction in an uncertain risk environment with investors largely sitting on the sidelines.&rdquo

 

The opportune timing of the sale of FMH does not appear to have made shareholders of SingPost any more optimistic about the future, though. In fact, a number of them expressed concern during the AGM about the group&rsquo s future direction now that FMH is no longer in its fold.

 

One shareholder even suggested SingPost liquidate its remaining assets, return its capital to investors, and seek a delisting.

 

The anxiety is understandable. While the sale of FMH put SingPost in a net cash position at the end of its financial year to Mar 31, 2025, it also removed a major contributor to its revenue and earnings.

 

Moreover, SingPost has since put a number of other assets on the block to further streamline its business profile and unlock value.

 

On Jul 22, just one day before its AGM, it announced the divestment of its freight forwarding business under two entities &ndash Famous Holdings and Rotterdam Harbour Holding &ndash for approximately S$177.9 million.

 

On Apr 16, SingPost said it would receive S$55.9 million from a deal with Alibaba that involves an unwinding of their crossholdings in two business units, Quantium Solutions International and Shenzhen 4PX Information and Technology.

 

Last week, on Aug 8, SingPost also confirmed that it had identified a preferred bid for a portfolio of 10 HDB retail units. The Business Times reported on Aug 7 that SingPost had struck a S$55.5 million sale-and-leaseback deal for the properties.

 

Meanwhile, SingPost Centre &ndash which was valued at S$1.1 billion back in Sep 30, 2023 &ndash has been identified as a non-core asset that may also eventually be sold to further unlock value. 

 

Will SingPost succeed in recycling the capital it frees up from these asset sales into new businesses that generate higher returns and boost its share price? Or, is the group just selling the family silver?

 

Uncertain strategic direction

A bit of history might be useful here. Back in May 2023, SingPost said it would initiate a strategic review of its businesses, to enhance shareholder returns and ensure the group is appropriately valued. 

 

When the review concluded in March 2024, SingPost said it had identified five &ldquo strategic thrusts&rdquo to pursue over three years.

 

One of these was to achieve scale in Australia. Among other things, SingPost said it would pursue appropriate merger and acquisition opportunities, and seek future liquidity options to maximise value. This reportedly included possibly floating the Australia business. 

 

On Dec 2, 2024, however, SingPost said it would sell FMH to Pacific Equity Partners. This came about after the group received unsolicited interest in FMH, which led to an international competitive bid process. 

 

&ldquo After evaluating various options, including full and partial divestments, organic and inorganic growth strategies, the board determined that a full divestment was the best option,&rdquo SingPost said on Dec 2, 2024.

 

SingPost&rsquo s seeming inability to build up an overseas operation that drives the market value of its shares raises questions about what its long-term strategy ought to be.

 

For now, the group seems to be focusing on cost efficiency, by reintegrating its international e-commerce logistics business with its local postal and logistics operations. It is also investing S$30 million to expand its e-commerce logistics capacity.

 

This doesn&rsquo t seem to be exciting the market, though. SingPost shares corrected sharply after trading ex-dividend on Jul 30. The stock closed last week at S$0.505, down 4.7 per cent since the beginning of the year. 

 

&ldquo SingPost&rsquo s core postal and logistics business faces weak profitability amid persistent structural decline, the high fixed cost of operating its postal office network, and rising competition in a highly fragmented market,&rdquo said S& P Global Ratings in a research note on Jul 25, which downgraded SingPost&rsquo s credit rating to &ldquo BBB-&rdquo from &ldquo BBB&rdquo .

 

S& P went on to note that SingPost is in the process of overhauling its board and senior management. &ldquo We await clarity on the company&rsquo s strategy to regain competitiveness and profitability.&rdquo  

 

It added: &ldquo That said, SingPost is in talks with the government to address the financial sustainability of (its) postal services and the post office network.&rdquo

 

Not like SMRT or SPH

The way I see it, any plan by SingPost to reposition itself is unlikely to be well-received by investors if the weak profitability of its postal services business is not also somehow tackled. 

 

Indeed, some investors may be holding on to SingPost shares in the belief that it is just a matter of time before this issue is resolved. After all, SMRT Corp was taken private by Temasek back in 2016, just as the government introduced a new rail financing framework. 

 

More recently, in 2021, Singapore Press Holdings&rsquo decision to hive off its media business led to competing bids for the remaining group. 

 

It seems unlikely to me, however, that SingPost&rsquo s key stakeholders will be inclined to carve out and preserve its postal services in a similar fashion. While postal services may still be vital to some segments of the public, they are not of the same national importance as public transport or news media. 

 

SingPost&rsquo s own officials have also previously said that &ldquo nationalisation&rdquo is not on the cards. 

 

On the other hand, it may be awkward for the government to allow a public-listed company such as SingPost to significantly boost its profitability through higher postal rates or reduced service obligations.

 

In short, the financial sustainability of SingPost&rsquo s postal services may never be totally resolved. The upshot is the group may just continue to muddle along, occasionally tapping its balance sheet to invest in new businesses, but ultimately failing to garner a much higher market valuation.