• Correction in share price
• Still some uncertainty ahead
• Wait for better signs

Share Price Has Corrected

Since our last report on 15 May, “eCommerce needs time to deliver”, in which we downgraded Singapore Post to Sell, the stock price has corrected by about 8% vs. the STI’s flattish performance. At one point, the stock closed as low as S$1.235, which was on 6 Jun. This is likely attributed to the group’s disappointing FY17 results, poor performance from TradeGlobal, as well as uncertainty relating to this entity. We highlight that there are other factors to consider (not all negative) for the group going forward.

Assessing Terminal Dues Impact

Since 1969, the designated operator that sends a letter-post item to another country remunerates the destination post for processing and delivering that item. This system of remuneration is known as terminal dues; postal rates will increase following changes in the terminal dues systems starting from 1 Jan 2018, and SingPost is still assessing the overall impact of this increase. SingPost has a commercial delivery network, and there may be opportunities for this segment in the logistics division, as some volumes may be channeled over from international mail.

SPC Retail Mall – Some Financial Impact Starting Oct

Currently most of SingPost’s rental income comes from SingPost Centre’s office space since the retail mall is under development; other key contributors include the Tanglin Post Office, KPO and a childcare centre. Looking ahead, the new SPC mall will open up in phases from Sep this year; FY18 will see six months’ worth of contribution though this is not the full impact from the entire mall.

Upgrade to HOLD

Given the share price correction, we upgrade our rating to HOLD, keeping our fair value estimate unchanged at S$1.20. Looking ahead, there are several things to look out for: 1) level of improvement in volumes from the collaboration with Alibaba, 2) results from the review of the TradeGlobal acquisition, 3) utilization levels at the new ecommerce logistics hub, and 4) any escalation of losses from the ecommerce division.

Source: OCBC Research - 15 Jun 2017