Covid

THE CONTEXT • Investor interest in SingPost spiked up in the past week after Aussie news media reported "heavyweight private equity firms vying" for SingPost's A$1 billion portfolio of Australian assets. • SingPost stock, up from 46 cents to as high as 55 cents in the past week,has seen also a strong recovery from its year-low of 38 cents in March. The stock is still "severely undervalued", according to UOB Kay Hian's latest report. It used a sum-of-the-parts valuation method to value it at 61 cents(see graphic below). Does a 20% upside translate into "severe" undervaluation currently?  Solar panels were recently installed on the rooftop of SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion. • In transforming itself into a technology-driven logistics enterprise in recent years, SingPost has addressed an existential threat -- the structural decline in its legacy postal business.  • It has also embarked on a strategic review which is likely to unlock value for shareholders. See excerpts of UOB KH's take below...

 
Excerpts from UOB Kay Hian report
Analysts: Llelleythan Tan Yi Rong

Singapore Post (SPOST SP)

WHAT’S NEW
• Rationalisation of post offices. With 44 remaining post offices, SPOST is now focusing on other customer service touchpoints such as its POPStation network. 

As mentioned in our earlier reports, the rationalisation of the post offices was within our expectations as we expected the group to consolidate its postal branches and multiple sorting centres, lowering overhead costs.

Moving forward, we expect the group to continue consolidating its post offices, albeit at a slower pace which would support segmental margins.

• Strategic review still ongoing. As a recap, SPOST initiated a strategic review of its Australian business to explore options to drive growth and maximise shareholder value.

Some options include near-term partnerships, providing equity to deleverage debt, M&A opportunities and seeking future liquidity options.

In our view, we expect the strategic review to be completed around end-4Q24/early-1Q25 and reckon that the most likely outcome would be a strategic partnership stake sale. 

• Market talk of a potential sale. It was reported that several prominent private equity firms such as Brookfield Corporation, Blackstone Inc and Kohlberg Kravis Roberts (KKR) have shown interest in SPOST’s portfolio of Australian assets with potential bids incoming within the next few weeks.

These assets primarily include CouriersPlease and Freight Management Holdings (FMH) and is in line with the group’s strategy to seek strategic partnerships and M&A opportunities.

In our view, we expect that confirmation of any potential deal would be announced only after the group’s strategic review of the Australian business has been completed.

STOCK IMPACT
• Singapore: To stay profitable in 1HFY25. For 2QFY25, we expect the Singapore business to grow yoy, largely driven by the postal delivery business benefitting from the postal price hike in 3QFY24.

As a recap, the Singapore delivery business recorded a profit in 1QFY25 as e-commerce volumes rose (+2.9% yoy), offset by the secular decline in letter mail and printed paper volumes (-8.1% yoy).

However, similar to 1QFY25, we reckon that the postal office network would remain unprofitable in 2QFY25, dragged by inflationary pressures.

Based on our estimates, we expect 1HFY25 operating profit for the Singapore business (including the postal office network) to be around S$7m.

Moving forward, we expect the rationalisation of the postal office network to continue in 2HFY25, reducing operating costs and improving profitability. Potential downside may come from lower-than-expected letter mail and domestic e-commerce volumes. 

• International: Headwinds persist. We expect a weak macroeconomic environment and a strong Singapore dollar against the Chinese yuan to dampen cross-border postal volumes in 2QFY25.

As a recap, the international business was profitable in 1QFY25 and we do expect 2QFY25 to post a small profit as well, driven by implemented cost-efficiency initiatives and the group’s focus on managing profitability and ensuring a stable operating margin.

We reckon that air conveyance costs would likely continue trending downwards and the highermargin commercial cross-border operations would help support margins.

We opine that earnings from the international business would bottom out in 1HFY25 and grow moving into 3QFY25. Based on our estimates, 1HFY25 operating profit is at S$4m.

• Australia: Inorganic growth to come through. We expect revenue and operating profit to grow in 2QFY25/1HFY25, largely driven by the consolidation of Border Express (BEX).

Excluding BEX, we expect 2QFY25 operating profit from the Australian business to grow yoy, on the back of organic volume growth from its 4PL business but offset by the 3PL business and the strong Singapore dollar against the Australian dollar.

Also, we expect BEX to deliver a strong performance in 2QFY25. Based on our estimates, 1HFY25 operating profit is likely around S$35m with S$15m coming from BEX. Moving forward, we expect BEX to significantly boost segmental annual operating profit in FY25, coupled with organic growth from the Australian business.

• Famous Holdings: Correction underway. In line with falling sea freight rates, we expect 2QFY25 revenue and operating profit to decline but still post a small profit for the quarter.

Based on our estimates, 1HFY25 operating profit is roughly around S$4m. Earmarked as a non-core asset in our view, we reckon that the divestment of Famous Holdings is likely in the short to medium term.

• Property: Expect stable performance. We expect 2QFY25 overall occupancy rates at SingPost Centre to remain stable or improve from the 96.0% overall occupancy rate in 1QFY25. Based on our estimates, 1HFY25 operating profit would be around S$20m.

EARNINGS REVISION/RISK
• We maintain our earnings estimates. For 1HFY25, we expect overall group operating profit of around S$58m (including S$12m in corporate overhead costs) and underlying net profit of around S$30m, implying yoy growth rates of 84.7% and 123.9% respectively.

VALUATION/RECOMMENDATION • Maintain BUY with the same SOTP-based target price of S$0.61. Based on our SOTP valuation, we value the property, logistics and postal segments at S$844m, S$914m and S$245m respectively. Llelleythan Tan, analystGiven that SPOST’s current market cap is around S$1.17b, we think that the market is severely undervaluing SPOST’s businesses. At our target price, SPOST trades at 19x FY25F PE, at -0.5SD to its long-term mean. SHARE PRICE CATALYST • Potential stake sale of its Australian business. • Divestment of non-core businesses.

Full report here. 

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

SingPost
Special dividends incoming

With the election over, we believe SingPost will now hasten efforts to size down its postal network branches to reduce cost and it’s likely to sell some of these properties at the same time. 

SingPost Centre is also another key asset that has been earmarked for sale to unlock value for shareholders.

Its freight-forwarding business, which is in the process of being sold, will also add to the divestment proceed.

Waiting to be sold: SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion.

New business model needs to be forged

Within its mail business, the postal network is expensive to maintain but serves only 20% of total mail volume.

With growing digitalisation of its services, post offices have become less relevant and financially unsustainable.

SingPost is discussing with the government to forge a new business model to address this issue.

As there are new directors coming on the board, a new Group CEO has to be hired if SingPost does decide to invest in a new business.

As for now, we understand the process is ongoing and no group CEO/business have been identified yet.

Full report here. 

See also: SINGPOST: Ignore The Noise, say analysts. Special Dividends Loom as This Company Monetises Non-Core Assets

THE CONTEXT • SingPost stock tumbled 10.7% to 50 cents yesterday after the shocking news that the company had sacked its CEO and CFO. • Is the stock fall justified? For all the drama, the company’s big plans, like selling non-core assets and boosting shareholder returns, are all driven by the board, so likely the investment thesis stays. That's according to Maybank Kim Eng. SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion, is likely to be sold. • Furthermore,  SingPost has already smoothed things over with the customer involved in the whistleblowing case that started the series of events leading to the sacking of the CEO and CFO. SingPost has taken no major financial hit from the case. •Thus, this is looking more of a hiccup than a hurdle as far as stock investors are concerned. Some investors might see it as the perfect chance to scoop up shares. Maybank's actual recommendation is "accumulate on weakness". • OCBC Securities has a more tempered view: "We leave our forecasts intact but nudge our equity risk premium assumption up by 50bps to 5.5% to reflect greater corporate governance risks and uncertainty. Consequently, our FV estimate dips from SGD0.58 to SGD0.54, and we reiterate our HOLD rating." Read more below....

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

Opportunity to accumulate

Three managers with various operational responsibilities in its international business operations allegedly manually performed/approved updates of delivery failure status codes for parcels SingPost had agreed to deliver even though no delivery attempt had been made and which lacked supporting documents to avoid contractual penalties with one of its largest customers.

The 3 managers were terminated earlier in 2024 and a police report has also been made.

A settlement has been agreed and paid to the customer which is not material to SingPost’s current year NTA and EPS.

Board-driven initiative – End-game unchanged

In July 2023, the board initiated a strategic review with a view to enhancing shareholder returns and ensuring that SingPost is appropriately valued.

It has identified a list of assets and businesses that are non-core to its strategy which can be monetised to recycle capital.

We believe that the proceeds from the Australia business will be returned to shareholders after paring down debt.

We also expect more asset sales going forward like Famous Holdings, SingPost centre and its post offices.

We expect potentially up to SGD0.86/sh of dividends in the next 2 years.

Accumulate on weakness Jarick Seet, analystDespite the termination of key management, we believe that the roadmap to return shareholder value remains unchanged as it is board-driven and shareholders could potentially receive up to SGD0.86/share if all its assets are monetised. We think the downside risk is now limited and maintain a conviction BUY on SingPost for its asset monetisation story.

Full report here. 

 

Excerpts from Maybank KE's report
Analyst: Jarick Seet 

SingPost
Patience to be rewarded

After paring down its Australia debt and coupled with the potential sale of Famous Holdings, we expect around SGD400-450m excess sales proceeds could be distributed as special dividends to shareholders.

As of 30 Sep 2024, SingPost still holds about SGD428m of cash, hence we believe it will not need to keep so much cash from the sales proceeds on its balance sheet.

This works out to be around SGD0.17-0.20/share for potential special dividends.

Even without Famous, we expect the distribution to be around SGD0.12-0.15/share.

Waiting to be sold: SingPost Centre in Eunos Road, a prominent mixed-use development valued at S$1.1 billion.

Singapore business will need more right-sizing

 We believe that the local postage business will likely still experience a drop in volume and more right-sizing of costs and outlets will likely be needed.

We also expect postal rates to be raised down the road amid declines in volumes and users.

Full report here. 

See also: SINGPOST: Ignore The Noise, say analysts. Special Dividends Loom as This Company Monetises Non-Core Assets

THE CONTEXT • It's hard to be anything but congratulatory towards Tiong Woon Corp. It has demonstrated resilience and even consistent growth in an industry as competitive as construction -- even through the Covid pandemic. • But if there's one thing it can work harder on, it's that intangible good connection with investors, especially when construction stocks aren't sexy to begin with. •  Investors have not been attracted to this company (market cap: S$125 million), let alone according it a respectable valuation.  • At least, one gets that vibe from the Securities Investors Association of Singapore's (SIAS) "interrogation", if you will, in a set of questions for Tiong Woon ahead of its FY2024 AGM on 30 Oct.  • Tiong Woon's responses are relatively short and general in nature and... not something you'd wildly congratulate the company over. But SIAS's questions may well serve as a catalyst for an upturn in the company's connection to the stock market. Read all that below....

 
Excerpts of SIAS questions and Tiong Woon's responses, in a filing on the SGX website on 24 Oct: 

Company’s Response:
The Board has carefully deliberated on the payout ratio, balancing the need to reward shareholders while ensuring sufficient capital for future growth and operational requirements.

Each option is assessed with regard to its potential impact on shareholder value, financial stability, and alignment with our longterm strategic goals.

The Board remains committed to ensuring that any decisions made are in the best interests of our shareholders while supporting the Group's ongoing development. 

(ii) Can the board help shareholders recall if the company has carried out any share buybacks? What are the challenges, if any, of the company carrying out share buybacks?

Company’s Response:
The Company has carried out share buybacks from 30 August 2022 to 12 September 2022 amounting to 400,000 shares.

The Board will continue to consider exercising this option when market conditions and other factors are favourable.

(iii) Has the board considered carrying out any off-market purchases, including an equal access offer?

Company’s Response:
The Board has not considered off-market purchases at this time.

However, it remains open to evaluating this option in the future, should market conditions and other factors make it favourable for shareholders.

(v) Apart from acknowledging that there are many external factors influencing the share price, would the board consider disclosing and implementing targeted strategies to narrow the discount gap, thereby creating value for shareholders?

Company’s Response:
The Board recognises that external factors have a significant impact on the share price.

While these factors are beyond the Company's control, the Board continues to focus on strengthening the business fundamentals, improving overall performance, announcing major project awards and engaging with shareholders more actively.

The Board will continue with our efforts in this regard, so as to bolster higher trust and confidence in TWC, align the Group’s strategies with shareholders’ interests and narrow the gap between TWC share price and its intrinsic value.


See also: TIONG WOON -- After 7 years of growing profit, will this stock finally break out?