Return to sender: SingPost packs up Aussie venture

Despite selling four out of every ten mobile phones, Nokia was swiftly losing market share to iPhones and Android devices, and its decline required urgent action.

SingPost, as the company is widely known, retains its monopoly on domestic mail delivery, a privilege it has held for nearly two centuries. However, this business is in a structural decline. Shortly after becoming a listed company in 2003, its board and management, seeking to avoid their own “burning platform” scenario, turned to a familiar Singapore Inc playbook: expanding overseas.

However, right ideas require effective execution. The company embarked on a series of overseas acquisitions worldwide, but many of these had little impact, though a more recent push into Australia proved more successful.

What used to be a high-yielding stock favoured by investors soon became less popular. Overall earnings, weighed down by the rapid drop in domestic mail, dropped, and the company was compelled to trim its dividend payout. This sent SingPost’s share price down further from its all-time high of more than $2 in 2015 to as low as just above 40 cents.

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Having spent the recent years reshaping its growth profile, SingPost’s board is frustrated that the market does not fully recognise the value of its assets, including its Australian businesses and flagship property SingPost Centre. If this value can be properly unlocked, long-suffering shareholders may finally see relief.

On March 13, SingPost shareholders will be asked at an EGM to approve the divestment of its Australian businesses, held under an entity called SingPost Australia Investments (SPAI), to Pacific Equity Partners at an enterprise value of A$1.02 billion ($861 million).

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SingPost’s first investment in Australia was in December 2014, when it acquired parcel delivery company CouriersPlease for A$95 million, or $105 million at the time. Today, SingPost’s Australian business includes Freight Management Holdings (FMH), Border Express and CouriersPlease, which merged with FMH in June 2024.

Should the divestment proceed, SingPost will receive gross proceeds of A$775.9 million and generate a gain on disposal of about $289.5 million. SingPost previously said that it would see an increase in disposal of $312.1 million in December 2024; the difference in figures is due to the exchange rate used at the time.

The Australia businesses have been growing steadily in recent years and have helped support SingPost’s overall numbers. FMH’s ebitda increased from A$25.4 million in FY2021 ended March 2021, to A$68.9 million in FY2024. Just in the 9MFY2025, FMH’s ebitda has reached A$70.6 million on the back of A$802.2 million in revenue. 

Of SingPost’s three main business segments, Australia is more significant than both the domestic and international divisions. Australia is not only larger but also much faster-growing. In 1HFY2025 ended September 2024, revenue in Australia grew by 44.1% y-o-y to $574.9 million, making up 57.9% of the company’s total of $992.4 million. In the same period, the domestic business was up 13% to $166.5 million while international was down 9.7% to $263.9 million.

If the sale proceeds, SingPost will need to find a new growth driver, a concern the company has acknowledged. However, the board also sees improving shareholder value as a key priority. “The market has never bought into the story about our growth in Australia,” said SingPost chairman Simon Israel at a media briefing on Feb 26. He notes that FMH’s earnings growth over the last five years has been going on an opposite trajectory to SingPost’s share price since the acquisition.

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The market has never bought into the story about our growth in Australia, says SingPost chairman Simon Israel. Photo: SingPost

According to Israel, SingPost considered several options for its Australia business, each with its pros and cons. It can further grow by acquisitions, form strategic partnerships or do an IPO “in the near future”. The company concluded that a divestment seemed like the best solution as it would unlock the value of the business “a lot sooner” and it would help to reduce debt.

Of the gross proceeds, SingPost will use A$362.1 million to repay its debt, which was taken on when SingPost acquired FMH. As of Sept 30, 2024, SingPost’s total Australian dollar-denominated debt amounted to A$614.8 million.

If the sale is completed, SingPost may pay a special dividend. Since news of the sale was first flagged on Dec 2, 2024, analysts have already put forward their estimates of the quantum. SingPost is bound by listing rules which requires it to an­nounce the amount of dividends it can recommend only together with the financial results. The next would be sometime in May when it reports its FY2025 ending March.

“With the sale of its Australian business, we believe that the roadmap going forward to return shareholder value is strengthened,” says Jarick Seet of Maybank Securities. Besides FMH, other assets are potentially up for sale, including
SingPost Centre, which has significant office and retail spaces besides the operations side. Seet estimates that shareholders could receive up to 86 cents per share if these assets are monetised.

UOB Kay Hian’s Llelleythan Tan estimates a special dividend of 16 cents, assuming that the remaining $362 million in cash proceeds will go towards the special dividend. However, Tan believes that SingPost will prioritise future growth opportunities and/or reduce debt instead of paying a large special dividend.

Assuming $100 million of the proceeds are to be distributed, that would translate into 4.4 cents per share, giving a yield of 8.8%, writes Tan in his Dec 3, 2024, report. “As our base case, we assume that SingPost would minimally maintain its FY2025 dividend for FY2026-FY2027 via special dividends.” Tan, noting how Australia was driving SingPost’s growth, was surprised that the company did not divest a minority stake instead. 

The board considered this point, which is why another strategy, “reset,” will follow the sale. If the sale isn’t approved, it will be business as usual and SingPost will concentrate on growing instead, says Israel. 

Seeking a new CEO and direction

Given all these moving parts, the search for a new CEO will take place after the EGM, once there is more clarity. The position has remained vacant since the dismissal of SingPost’s group CEO Vincent Phang, group CFO Vincent Yik, and the CEO of its international business unit, Li Yu, in December 2024.

SingPost is eyeing growth in e-commerce logistics as the next area to focus on. Photo: Bloomberg

At the briefing, Israel said that the board applies a “very high standard of governance” and closely follows its disciplinary policies. He also confirmed that the trio has not filed a lawsuit.

At this stage, the board is not conducting a formal search as it needs to establish the framework for a strategy first. It will also consider both internal and external candidates.

“Having set that framework also informs you, at least, of the sort of CEO that you would be looking for. You just can’t go and get a CEO,” says Israel. He adds that the new CEO will also need a clear understanding of available resources, including cash for investment.

In its statement, the board announced it will complete the ongoing review of its international business and explore ways to ensure the sustainability of its local postal and logistics operations, particularly through the growing e-commerce logistics sector.

From Israel’s perspective, there are numerous growth opportunities in the fragmented e-commerce space, which is now dotted with loss-making upstarts. E-commerce is a key driver for SingPost’s local business and its e-commerce logistics hub in Tampines is operating at full capacity.

“But therein lies the opportunity. If we can change the business model, we will have an opportunity to change the cost base of the company significantly. Through investing in e-commerce, we have, I think, a very strong pathway to growth,” adds Israel. “And from that, I think you will see the Singapore posted and logistics network that we had reinvented and put on a platform which is both profitable and sustainable.” He continues: “So the message there is, you should see Singapore as an opportunity, not necessarily an issue.”

In his Feb 13 report, Maybank’s Seet believes that the local postal business will likely continue to see a drop in volume and that more right-sizing of costs and outlets will likely be needed.

In a Feb 23 report, the analyst continues: “The Singapore business has recorded an operating loss due to lower revenues and the high cost of operating the postal network. Adjustments will be made to some post offices and locations to ensure that postal services remain cost-effective, but we also think that upward rate adjustments are likely needed.

A state takeover?

Market observers have drawn parallels between SingPost and two other prominent homegrown organisations: SMRT and Singapore Press Holdings (SPH). Both were once high-profile listed companies: SMRT, once an investors’ favourite for its generous dividends from retail rentals, neglected maintenance, leading to a major public uproar. SPH, which has been dominant for years with its stable of newspapers, recognised its decline as online media consumption surged and invested its profits from the monopoly years into malls, bungalows and nursing homes.

Both companies were delisted due to mounting structural challenges — SMRT by Temasek, where Israel was a long-serving executive, and SPH, whose media business was restructured into a separate entity now known as SPH Media. Its commercial assets were then divided between Temasek-linked Mapletree Investments and CapitaLand.

Regarding the possibility of privatisation, Israel says: “There has to be an actor who wants to privatise a company” as SingPost can’t privatise itself. When asked if the nationalisation of SingPost is on the cards, Israel was quite clear this question should be posed to someone else. “You have to ask the government, not me.” 

See also: Investors may turn to SingPost’s properties following special dividend from FMH sale