Both ratings have been placed on CreditWatch with negative implications.
“The CreditWatch placement reflects a heightened probability that we could lower our ratings by one notch following a strategy reset and the sale of its Australia business,” writes Ong in her June 4 report, which is supported by her team of secondary contacts Minh Hoang and Pauline Tang.
Ong’s ratings come on the back of SingPost’s proposed sale of its Australian business, which “clouds” its future strategy in her view.
For the past four year, SingPost has invested in the Australian logistics industry to mitigate the structural decline in the postal sector.
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For the 1HFY2025 ending March 31, 2025, Australia has been a key contributor, accounting for 58% of SingPost’s total revenue.
Due to the loss of a "key earnings pillar", the analyst sees uncertainty over the group’s future strategy and earnings contribution.
“It also unwinds management efforts over the past four years to diversify the business from earnings in structural decline and build a second-home base,” adds Ong.
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Upon completion of the sale, Ong sees the group’s remaining business to be “narrower” and reduced in scale and diversity.
That said, Ong adds that the disposal will provide immediate relief to the group’s leverage profile.
The sale, which is expected to generate a net gain on disposal of $312.1 million, is expected to go towards paying down SingPost’s Australian dollar-denominated debt.
The group expects to receive cash proceeds of $682.8 million, against its outstanding Australian dollar-denominated debt of $544.9 million.
Based on analyst’s estimates, the group’s debt-to-ebitda ratio will be reduced to below 2 times following the completion of the transaction, which is a “material improvement” from their earlier projections of more than 3 times for fiscal year of 2025 and 2026.
However, SingPost's leverage policy and future capital allocation appear uncertain,in the analyst’s view.
Ong adds that the group’s improved leverage position may not be sustained through investment cycles, and will be subject to SingPost’s future business strategy.
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“While the company continues to work on divesting other non-core assets, the uncertainty around the use of proceeds remains. A potential sale of SingPost Centre could provide significant financial flexibility to the company and could further reshape the business,” says Ong.
She adds: “Should a sale occur, the way in which SingPost reallocates capital could have a bearing on both its business and financial risk profiles.”
Shares in SingPost closed 0.5 cents lower, or down 0.84%, at 59 cents on Dec 5.
