SingPost’s turnaround: Can the mailman deliver?

In this issue:

• SingPost clears out its mailbox Down Under
• Super Hi’s souper-licious earnings

Good morning, BT readers. 

There is an unofficial postman’s motto which goes: Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.

Nobody said anything about structural decline and elevated leverage. 

Singapore Post (SingPost) would know – it is battling both elements while simultaneously trying to transform itself.  But even as it buys this and sells that, SingPost has to square up to the complexities of its origins in the local postal business.

What’s happening?

SingPost is making more headway in its quest to slash debt and reinvent itself. Last week, it said that it is in exclusive talks for a potential sale of its Australian business, though nothing definitive has been reached. 

The postal services provider has been focused on getting leaner in recent years, closing 12 post offices and identifying non-core businesses in a strategic review that concluded in March. As part of the weight-shedding, it plans to sell SingPost Centre at Paya Lebar Central, a non-core asset valued at S$1.1 billion as of September last year. Also, the potential sale of its freight forwarder unit, Famous Holdings – which SingPost has identified as a non-core asset – could unlock about S$900 million to S$1.1 billion of proceeds, a Maybank Securities report said last week. The report, which initiated coverage on the stock with a “buy” rating and a S$0.74 target price, deemed SingPost “deeply undervalued”. SingPost’s counter closed at S$0.58 last Friday.

Why it matters

While the market celebrated the potential divestment of the Australian segment, there is some irony in this development. A sale Down Under will help SingPost pare its debt and interest expenses, but it was its expansion in the Australian market that had contributed to its growing loan obligations.  

At the same time, its acquisitions there were key to its pivot towards global logistics. Already, SingPost’s Australian interests account for 59 per cent of its operating profit in H1 FY2025, providing much of the growth in revenue. 

The market will now keenly watch which of its Australian units and how much of them it will sell. As BT’s Tay Peck Gek noted in a Hock Lock Siew piece last week, selling anything other than a minority stake in its Australian ventures will negate the work it has put into growing its business there.

Balance sheet aside, SingPost faces a larger and more fundamental existential conundrum. It is no longer a public utility provider, as its CEO Vincent Phang noted. However, it continues to have the trappings of one.

It is Singapore’s only public postal licensee and must incur costs to keep up service standards. It also needs the government’s approval to raise postage rates, which it did last October. Even so, the last major rate hike was in 2014.

Last year, BT’s Ben Paul had reckoned in a Mark to Market column that the boost from rate hikes would be a temporary one. “The higher postage rates will do nothing to halt the decline in postal volumes,” he’d said. From FY2019 to FY2023, SingPost’s mail volumes fell by more than 40 per cent. 

S&P Global Ratings, however, said in an update this year that the higher rates and improving e-commerce volume mean that the domestic postal sector is “no longer a drag” on SingPost. The credit ratings agency has a “BBB” rating and negative outlook on the company.

For SingPost’s latest half-year earnings period, revenue from Singapore was up thanks to the higher rates, but one-off costs and the continued decline in letter mail volume tugged the unit’s bottom line into a S$900,000 operating loss – albeit a much smaller one compared with its previous loss of S$14.7 million.

The group is hammering out an operating model with the authorities to “ensure the long-term commercial viability of postal services”, it said earlier this month. For now, the focus appears to be on its post office network, with the number of branches set to be “significantly smaller”, chief executive Phang said at a recent analyst briefing.

It is a little soon to tell, but these moves hardly sound like the seismic changes that BT’s columnists have previously mooted, from letting SingPost revise its own rates annually to having a full or partial nationalisation of its domestic obligations. 

Regardless, SingPost’s inbox is pretty full; it has given itself three years to reduce debt, scale up in a competitive Australian market and re-engineer its local postal network, among other things. 

The postman’s snow, rain and heat must be looking pretty good right now.

The big number: US$37.7 million

Haidilao’s Sichuan Spicy soup base is red as all heck, but the restaurant operator’s bottom line no longer is. Singapore-based Super Hi International swung back into the black, posting a Q3 net profit of US$37.7 million last week compared with a US$1.4 million net loss a year ago.

The hotpot chain is firing on all gas cylinders, with ongoing business expansion, better operational efficiency and higher dining-out demand turbocharging its numbers. 

Super Hi, which is dual-listed in Hong Kong and the US, operates Haidilao’s outlets outside China. It plans to make more tasty inroads in the US market and will unveil additional outlets in New York and Los Angeles next year.

Even as Haidilao expands its already-broad footprint outside China, competition will be stiff, an analyst told Yicai Global. Other Chinese restaurant chains, looking to offset a saturated home market, are also looking to grow globally.

As companies elsewhere intensify their overseas forays, more of the monied might beat a path to Singapore. Looking to offload a Good Class Bungalow, a plain old bungalow or a 21-storey building? Time to call your real estate agent.

5 big reads

• Macquarie initiates coverage on 11 S-Reits with top picks including data centre plays What to look at in a higher-for-longer interest rate environment.
• Single leverage limit, additional disclosures imposed on all S-Reits: MAS S-Reits will be subject to a minimum interest coverage ratio of at least 1.5 times.
• Current higher yields on Singapore Savings Bonds and Treasury Bills unlikely to last: analysts Once the markets digest developments in the US, rates will come down.
• Genting Singapore’s luck may turn in 2025 The renewal of its casino licence for a shorter two-year term adds to its uncertainties, but a turnaround could come.
• From tweets to trades: Heeding the risks of social media in investing Beware of confirmation bias exacerbated by echo chambers.