• SINGAPORE POST LIMITED (SingPost, SGX:S08) to introduce new package categories and realign existing registered services from 2 Dec 2019.
• To reduce cost of doorstep delivery and leverage its strength in letterbox delivery with a tracking feature.
• International rates to increase alongside higher international postal settlement rates.
• Maintain HOLD and Target Price S$0.96 amid headwinds from higher operating costs and slower international mail volume.

Changes Will Reduce the Burden of SingPost's Doorstep Delivery for Ecommerce Packages

• The key changes are:
  1. Ordinary Mail (renamed Basic Mail) will only cover letters and printed papers below 500g (vs. up to 2kg earlier) from 2 Dec 2019, rates unchanged. Registered service for doorstep delivery will only be offered for packages below 500g.
  2. Two new categories for packages weighing 500g to 2kg have been created (Basic Package and Tracked Package) and will not offer Registered service for doorstep delivery.
• See SingPost Announcements; SingPost Latest News.
• As we understand, many customers prefer delivery of ecommerce packages to the letter box with tracking feature, rather than having to wait at the doorstep for delivery lest they miss it. Customers will have to use SpeedPost courier services for doorstep delivery from 2 Dec 2019.

Insignificant Revenue Impact But Potential for Cost Savings

• Under the new rates for Tracked Package (versus Registered Service), SingPost will receive 2% to 13% more postage fees for packages under 100g, while receiving 6% to 14% less fees for packages between 250g to 2kg (see details below). This will allow the postman to be more efficient, without having to deliver to the doorstep and deal with missed deliveries.

International Rates to Increase Alongside Higher International Postal Settlement Rates

• SingPost has been absorbing yearly increases in payments to foreign postal operators since 2014. International airmail rates for Mail will increase by S$0.10-$0.20 per piece, while Registered Service (International) fee will increase by S$1.10 from S$2.50. The increase in rates are alongside higher international postal settlement rates paid to various foreign postal operators should be largely positive for SingPost.

Maintain HOLD, Target Price S$0.96

• Though we believe the new package categories and higher international rates should be largely positive for SingPost, we maintain our HOLD call amid two key headwinds:
  1. higher terminal dues adversely affecting international mail volumes which has been the key growth driver so far, and
  2. higher operating costs in order to improve service quality in Singapore.
• It may take SingPost 2-3 years to overcome these challenges by investing in technology, in our view.
• While we like Its potential exit from the US business, it is difficult to see real growth drivers besides cost-reduction programme over the next 2-3 years.

Source: DBS Research - 31 Oct 2019