SINGAPORE (Dec 4): DBS Research is maintaining its "hold" call on Singapore Post with a target price of $1.23 after the announcement of higher postage rates for international small packets.

Currently, small packets, letters and printed papers weighing not less than 2kg come under international airmail rates.

With effect from Jan 2, small packets will be under a new rate structure with hgher minimum postage across the board, with increases of $2 to $3.50 per packet. Currently, international mail revenue contributes 25% to Singpost’s total revenue.

The higher delivery cost is due to higher international postal settlement rates. Effective Jan 1, settlement rates which Singpost pays to other postal organisations for mail delivery within their country will be raised.

International postal settlement rates are determined by the Universal Postal Union (UPU) and set every four years. Increase in rates for international small packets deliveries are implemented to take into account higher delivery cost as well as increasing volumes of eCommerce packets.

In addition, Singpost will also cease surface mail services for small packets with effect from Jan 2 due to low demand for such services.

As highlighted in previous reports, DBS was worried impending changes to terminal dues with effect from Jan 1 may entail downside risks to its forecasts due to higher delivery costs.

However, in a Monday report, analyst Sachin Mittal says he welcomes the change in rate structure which features a new rate structure for international small packets and setting the minimum chargeable weight as 100g, instead of 20g as it is under the existing international airmail rate.

"Singpost will benefit from increased minimum postal rates as well as higher postage rates for the lighter small packets, which we believe forms the bulk of small packet volumes. We note that for packages that are 500g and above, the new cost structure has a lower postage rate," says Mittal.

"We will continue to monitor the impact of revised rates," adds the analyst.

Shares in Singpost are up 1 cent at $1.29 or 23.2 times FY18 forward earnings.

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