SingPost – Analysis and Outlook

Posted on February 8, 2016 Updated on June 30, 2016

The most popular post in Feb10 Capital blog is analysis of  SingPost (https://feb10capital.wordpress.com/2014/04/05/singpost-analysis-and-outlook-after-q3-fy1314/) and I am again doing analysis on Singpost. There were lot of changes in SingPost since my last analysis and lets have look at them.

Business:

• Mail business – letters etc.
• Logistics – delivery, customs handling, POP stations
• e-commerce – End to End service from warehousing, selling and delivery
• Retail & financial services – insurance selling, postal sales
• Rental income – SingPost headquarters retail units
• Present across 18 countries – mostly Asia, US, UK etc.
• Digital services – SAM, Scan Mail etc.

Strengths:

• Revenue is on rise for last 5 years – mainly driven by acquisitions.
• Net Profit Margin is very good at 14% – 15%.
• Monopoly on Singapore mail services – very high margin (30% operating profit) business and International mail business is on rise.
• Wolfgang Baier (Resigned as CEO) set up company for future with extending to new businesses such as e-commerce etc.
• Regional logistics hub in Tampines shall open in 2H CY 2016 – Shall improve efficiency and may lead to decrease in cost per unit handling.
• Dividend yield is more than 4.5% based on current price of $1.38 and SingPost increased dividend in latest Q3 (from 1.25 cents to 1.5 cents).
• Strong distribution network  in Singapore with post offices, POP stations, warehouses, delivery people – can leverage network to handle other retailers and consumer facing services.
• Balance sheet is good with strong cash in hand of $185 million – may dilute due to continuous investments.

Weakness:

• Growth is mainly driven by low margin (7.5% operating profit) business and high margin (30% operating profit) domestic mail business is in gradual decline at slow pace. The increase in scale of ecommerce business may gradually help margins and SingPost growth lies in low margin business.
• Near term impact on revenue from SingPost Centre redevelopment.
• Expenses are outpacing the rise in revenue – nature of e-commerce business.  Costs shall continue to rise due to investment in facilities, technology and people.
• Resignation of Wolfgang Baier – Baier was majorly responsible for setting future vision for Singpost and he abruptly resigned. There after the corporate governance issues cropped up due to one of the acquisition and possible conflict of interest with one of the independent director. I am more worried about Baier resignation as SingPost will eventually come clean on corporate governance issues by putting proper procedure in place to avoid similar occurrences in future.  Can SingPost continue to prepare for future in absence of Baier?
• P/E ratio is high at nearly 20times – was 30 around 3 months back.
• Low NAV of around 70 cents.

Analysis:

• SingPost is one of the rare public postal service company primed for future with strong emphasis on e-commerce, online retail etc.
• Wolfgang Baier setup vision for medium term and it’s proper execution shall bode well for next 3 – 5 years.
• Alibaba currently holds 15% of SingPost and may raise stake in future to be significant minority shareholder.
• Online retail is gaining market share from traditional retailers and SingPost shall benefit from shift towards online retail.
• Very capital intensive business in terms of real estate, technology and people. Costs shall usually increase along with revenue. Any potential drop in revenue shall impact bottom line significantly as aligning costs with revenue shall not be very imminent.
• Lately SingPost is acquiring too many businesses and I personally would like them to give a pause to acquisitions and concentrate on deriving value from past acquisitions.
• There were serious questions raised on corporate governance of SingPost and company engaged special audit to uncover the things and to recommend proper actions to avoid similar fate in future. Although it is a cause of concern but personally I am not too worried as eventually public shall keep tab on SingPost.

Verdict:

• SingPost stock price was on decline in recent months and touched 52 week low of $1.28 as well. The share price can be volatile in near future due to corporate governance issues as well as potential impact from slow down in Singapore and ASEAN economy.  Singpost has good medium to long term potential and recommended to buy at $1.2 or below.

Thanks for reading my blog. Please leave comments for any queries/ views.

Disclaimer: By reading this blog post you agree that you shall be wholly and solely responsible for whatever action you take based on the information provided in this post.