SingPost bounces after strategic review. Is a recovery in sight?

Singapore Post, or SingPost, has concluded its long-awaited strategic review.

Earlier, we shared that SingPost was one of the Singapore companies going through a strategic review or transformation.

We have already seen other companies such as Sembcorp Industries, Singtel, Starhub outlining their plans to transform the company. 

More recently, Seatrium unveiled its Investor Day plans as management strives to turn the company around by 2028.

The announcement of the strategic review is timely, as the postal service provider’s share price has been steadily trending downwards over the past year.

SingPost’s shares have declined by 56% in the past five years and recently hit an all-time low of S$0.37.

However, SingPost’s share price rebounded by more than 10% since the announcement of the strategic review to close at S$0.42 as of 5^th April.  

It seems that investors are expecting SingPost’s strategic review to drive a turnaround in the company’s performance and share price. 

Let’s dig deeper into the group’s plans and strategic goals.

What investors need to know about Singapore Post’s strategic review

Management identified five strategic thrusts that will help to transform the group into a pure-play logistics player.

These initiatives will take place over three years and involve a range of activities such as group reorganisation, capital reallocation, and the building of scale in Australia.

Let us look further into each of these pillars to see how they can help SingPost to reinvigorate its business.

Thrust #1 - A corporate reorganisation

SingPost will initiate a corporate reorganisation by doing away with its old presentation format of disclosing its various business divisions.

The group had four main business units namely Logistics, Post & Parcel, Property, and Others (see diagram below).

Instead, SingPost will now be organised according to geographic region.

There will be three main business units in the new structure – Australia, Singapore, and International.

More importantly, the board of SingPost believes that “the current share price does not appropriately reflect the intrinsic value of the company. This is particularly apparent considering the value of the SingPost Centre, its Australia business and the Group’s growth potential.”

In the illustration below, SingPost Centre’s valuation of S$1,091 million as of 30 September 2023 would already exceed SingPost’s market capitalisation of S$0.86 billion as of 18 March 2024. 

As such, the execution of the strategic thrusts is intended to unlock this value for shareholders.

Thrust #2 – Effective capital management

SingPost will undertake active capital management to strengthen its balance sheet and improve its credit rating.

Management also intends to monetise non-core assets and businesses to recycle capital back into growth investments.

These proceeds may also be used for debt repayment or be returned to shareholders in the form of a dividend.

The group has identified a list of assets and businesses that are deemed “non-core” and can be sold to recycle capital.

These include properties and various assets within its international portfolio.

In line with this transformation, the board will adopt a dividend policy of paying out between 30% to 50% of underlying net profit as dividend commence 1 April 2024 (FY 2024/25)

SingPost announced a total dividend of 0.58 cents in fiscal year 2022/23, a decline from 1.8 cents in fiscal year 2021/22.

From FY20/21 to FY22/23, the company’s dividend payout ratio has ranged from 40-50%.

As such, the company’s new dividend policy would largely be inline with its dividend payout in the past three years. 

Find out how much dividends you would have received as a shareholder of SingPost in the past 12 months with the calculator below.  

Thrust #3 – Strengthening its Singapore core

SingPost intends to strengthen its Singapore business by leveraging its postal network to capture growth in eCommerce logistics.

For the third quarter of fiscal 2023/2024, around half of the logistics revenue came from letters and printed papers with eCommerce taking up another 41%.

Statista has projected that this eCommerce market will grow by 10.4% per annum from 2024 to 2029 to reach S$10.8 billion.

The plan is to re-engineer the network with asset-light alternatives while maintaining high service standards.

In particular, SingPost’s postal services sub-division will work closely with regulators to pursue a commercially sustainable framework.

This move comes after postage rates were raised late last year for the first time in 9 years to cope with rising costs.

Thrust #4 – Scaling its Australian business

With the acquisition of Border Express and Couriers Please in Australia, SingPost is now among the top 5 logistics providers in the country.

The integrated logistics market is poised to grow by 1.3% per annum over the next four years to hit US$129 billion by 2028.

From the diagram above, SingPost has operations covering most of Australia and the steady growth in the logistics market should open more opportunities for the group to capture more business.

Management intends to grow and scale the business further by exploring partnerships and investments.

SingPost will also explore different funding options to maximise value for its shareholders.

Thrust #5 – Serving cross-border customers

Technology will be utilised to help SingPost serve its cross-border customers for its International division.

The group offers a unique value proposition with its international connectivity to around 200 markets.

It also possesses a fourth-party logistics (4PL) platform that manages end-to-end supply chains.

The global cross-border eCommerce logistics market is projected to reach US$3 trillion by 2028 with an impressive 25.1% per annum growth rate from 2022 to 2028.

SingPost plans to ride on this growth to expand its cross-border eCommerce logistics business.

The group will explore opportunities in countries such as China, Hong Kong, and the UK as well as the Southeast Asia and Middle Eastern regions for suitable investments in areas such as first mile and customs clearance.

What would Beansprout do?

From SingPost’s share price performance since the announcement of the strategic review, investors seem to be pleased with the plans laid out so far. 

To us, the most important thrust seems to be capital recycling as it can free up cash and help SingPost to unlock value.

However, we will have to be patient to to see the effects for the other four pillars, as there will likely be a gestation period to optimise and scale the business in Singapore, Australia, and International.

Should SingPost be able to do so, there is potential for the company to unlock value for shareholders and bring its share price closer to the intrinsic value of the company.

Apart from SingPost, we will also be looking out for other companies that have shared ambitious plans to transform themselves.

For example, Sembcorp Industries aims to grow its gross installed renewable capacity to 25 Gigawatts (GW) by 2028.

Starhub has also demonstrated an improvement in profitability as part of its DARE+ transformation.

Let us know which of these stocks you would add to your watchlist as they execute on their transformation. 

Related links:

• SingPost dividend history and upcoming dividends

• Sembcorp Industries dividend history and upcoming dividends

• Starhub dividend history and upcoming dividends

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