SINGAPORE (Oct 31): DBS Group Research believes recently-announced adjustments to Singapore Post’s (SingPost) existing services are “steps in the right direction”. However, the brokerage cautions that key headwinds remain, which could offset some of the benefits that could arise from the changes.
SingPost announced Wednesday that it is making certain revisions to its existing services, which will take effect from Dec 2.
It claimed that the move is imperative to “meet the demands brought about by changes in Singapore’s postal landscape”. Such changes include the growth of eCommerce and falling mail volumes, SingPost said in a statement.
Firstly, SingPost is replacing its ordinary mail category with a new basic mail service that will only accept letters and printed papers that weigh up to 500g. Postage rates for these will remain the same at between 30 cents and $1.70, depending on the weight and size.
All other items, including merchandise and items between 501g and 2kg, will be categorised under Basic Package.
“This is to streamline the definitions of mail and package items, and hence, increasing operational efficiency of workflows and deliveries,” said SingPost, adding that there would be no changes to the existing rates and delivery times for basic mail.
Secondly, SingPost also announced changes to its Registered Article Service in Singapore, which will be renamed as Registered Service (Singapore). This optional sign-for service will only accept letters and printed papers up to 500g.
"This is to realign the intent of the service, originally designed to offer secure delivery and tracked receipt of important letters and documents," said SingPost, noting that customers have been using the service to send packages, which has in turn put a strain on the service.
“Following these adjustments, customers sending heavier items can now consider using the new Tracked Package for deliveries to the letterbox, or Speedpost courier services for doorstep deliveries,” added SingPost.
Thirdly, international airmail rates are also slated to see a spike as SingPost highlighted how it has been absorbing the yearly increase in payment made to foreign postal operators since 2014.
Under the revisions, airmail rates for letters, printed papers and postcards will increase by 20 cents for deliveries to Malaysia and Brunei, and by 10 cents to all other countries.
The Registered Service (International) fee will also be revised to $3.60, up from the current $2.50, in addition to the applicable postage fees. SingPost says that these rate revisions will be paid to postal operators of destination countries in response to the increase in charges for their delivery of postal items from Singapore.
While market watchers admit that the changes will have insignificant revenue impact on SingPost, they are quick to highlight the 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,” says DBS analyst Sachin Mittal.
“This will allow the postman to be more efficient, without having to deliver to the doorstep and deal with missed deliveries,” he adds.
Mittal is also bullish on the increment of international rates that are taking place in tandem with higher international postal settlement rates. “[This] should be largely positive for SingPost,” he says.
However, Mittal notes two potential stumbling blocks that could arise: higher operating costs that are likely to surface on the back of local service quality improvements, and slower international mail volume as a result of higher terminal dues.
“It may take SingPost 2-3 years to overcome these challenges by investing in technology, in our view,” says Mittal.
As such, DBS is maintaining its “hold” call on SingPost with an unchanged target price of 96 cents.
As at 2.25pm, shares in SingPost are trading flat at 96 cents. This translates into a price-to-earnings (PE) ratio of 21.3 times and a dividend yield of 3.6% for FY20F.
