Singapore Post’s share price has dropped by about 12% since the release of its 2QFY17 earnings, underperforming the STI by a significant margin; the latter posted a flattish performance over the same period. We attribute this to 1) 2QFY17 earnings that were lower than the street’s estimates, as well as the 2) revision in dividend policy.

As mentioned in our earlier reports, as SingPost builds up its eCommerce logistics capabilities, investments will be required, driving up expenses in the near term. Time will also be required for productivity gains as SingPost builds up scale. Margins in the logistics space are lower than mail, and competition in eCommerce logistics has also been increasing.

At current levels, the stock is trading with a ~2.7% forecasted dividend yield. Maintain HOLD with S$1.47 fair value estimate.

Source: OCBC Research - 18 Nov 2016