SingPost – OCBC

Limited upside potential for now

Stock has performed well. Singapore Post (SingPost) has outperformed the STI not only for the past half a year, but also over a longer period of time since 2004. The stock has risen about 11% YTD, compared to the STI’s near flattish performance. Backed by its relatively stable business, it has been a good place for investors to park their funds during times of uncertainty and volatility. SingPost’s price

has also appreciated by about 79% since the start of 2004 vs the STI’s 63% gain. All these do not take into account its dividend payouts.

Looking at the future. We have mentioned that the future of SingPost over the long term hinges on its ability to make astute investment decisions as it seeks new business opportunities. There is the need to find new drivers to sustain growth as the domestic postal industry has limited growth prospects. As SingPost seeks to transform into an organization offering various solutions to consumers, it is likely to leverage on its core competencies such as its extensive network, technology, and consumer-oriented focus. According to the Universal Postal Union, with over 660,000 post offices in 191 countries, the postal sector is the world’s largest physical distribution network.

Enhancing regional presence. The group is also looking to expand its regional presence using G3 Worldwide Aspac as a platform (with it, the group now has a network of offices in 10 countries/territories). SingPost is also part of the Kahala Posts Group, an alliance of 10 postal services (e.g. Australia Post, China Post Group, Japan Post etc) which focuses on International Express Mail Services (EMS). According to Korea Post, the EMS brand is now recognized as a fast, safe and high-quality premium services in its region1. SingPost has also been forging partnerships with other operators, such as its

joint declaration with the Egyptian National Postal Organisation this year to establish a bilateral partnership.

Downgrade to HOLD. The stock has performed well and has almost reached our fair value estimate of S$1.16. Given limited upside potential to our fair value estimate, we downgrade the stock to HOLD based on valuation grounds. Investors should continue to expect a dividend of about S$0.0625/share per year given the group’s comfortable cash flow position, barring unforeseen circumstances.

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