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SingPost books valuation gain while underlying transformation stays on track

Felicia Tan and Ashley Lo
Felicia Tan and Ashley Lo • 8 min read
SingPost books valuation gain while underlying transformation stays on track
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Singapore Post (SingPost) is making progress in its transformation into a regional logistics enterprise. Group CFO Vincent Yik says SingPost achieved a “good set” of results in a “pretty challenging” business environment when economies are slowing and inflationary pressures are staying high amid geopolitical uncertainties.

In FY2024 ended March 31, SingPost’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’s FY2024 revenue fell 9.9% y-o-y to $1.69 billion, the various business segments — logistics, post & parcel and property — 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.

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Nonetheless, SingPost’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%–7% against Singdollar, the reporting currency.

Yik warns that forex will always have an impact on SingPost’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. “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,” says Yik, adding that in the context of total revenue of $1.3 billion, the $73 million impact is “not very big”.

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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’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’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 “the first step of validating the transformation from a postal organisation to an international logistics enterprise”.

According to Phang, SingPost’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’s domestic postal business was also “critical” to resolve the “structural problem” which required near- and longer-term solutions, says Phang. He adds that the adjustment of Singapore’s postal rates from 31 cents to 51 cents since last October was “necessary” and has stabilised the company’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’s Singapore business has “performed well” due to “significant e-commerce growth” and an increase in postage fees. In FY2024, SingPost’s e-commerce delivery volumes increased 49% y-o-y.

With revenue from e-commerce now making up 41% of SingPost’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.

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He adds that the differentiation is a “great outcome” 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 “appropriately” reflect the company’s intrinsic value. As at March 31, SingPost’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’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 “fairly extensive review” 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’s top and bottom lines.

“Famous Holdings … has come off the pandemic highs when it contributed significantly,” says Phang. “And we do see that unwinding. It’s a lot more … normalised with the long-term rates that we see. We’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.”

“That’s something that we will progress accordingly. If it’s on the non-core list, we will treat it as a non-core option,” says Phang.

Analysts keep ‘buy’ calls
Analysts have continued to keep their “buy” calls on SingPost after its FY2024 results.

OCBC Investment Research analyst Ada Lim has kept her target price at 55.5 cents after SingPost’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 “played a role”.

“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,” Lim writes in her May 10 report.

“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’s discussions with the Infocomm Media Development Authority (IMDA) to ensure the long-term sustainability of its postal network,” she adds.

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

Other positives include SingPost’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.

“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,” Tan writes in his May 13 report.

“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,” he adds.

The analyst also anticipates Border Express to “significantly boost” its segmental annual operating profit by around $35 million to $40 million after the company’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.

“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’s current market cap is around $1.06 billion, we think the market is severely undervaluing the logistics segment,” says Tan. “At our target price, SingPost trades at 19 times FY2025 P/E, slightly above –1 standard deviation to its long-term mean.”

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 “good scale”, Ong believes SingPost has plenty of levers to pull to optimise its margins and thereby pave the runway for “good” earnings recovery in the coming FY2025 and FY2026. Besides keeping his “add” call, Ong has raised his target price to 63 cents from 58 cents.

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