In a circular announcing the sale of its Australian business, Freight Management Holdings (FMH), Singapore Post (SingPost) revealed a realised gain of $289.5 million and a net gain of $274.8 million.
The net gain translates to 12.2 cents per share, which is expected to be paid as a special dividend. The board will consider the special dividend once the proposed disposal is completed, the group said on Feb 26.
On a pro forma basis, assuming that the transaction had been completed on March 31, 2024 (SingPost’s FY2024 year-end), SingPost’s net tangible assets, excluding goodwill and other intangible assets, would have risen to 67.9 cents from 34.9 cents circular. Its pro forma intangibles, including goodwill, fell from $636.3 million to just $168.4 million.
In July 2023, the board initiated a strategic review to enhance shareholder returns and ensure that SingPost is appropriately valued.
On March 19, 2024, following the strategic review, SingPost announced it had identified a list of assets and businesses that are non-core to its strategy, which can be monetised to recycle capital. The board has indicated it plans to unlock the full value of FMH for shareholders. There will be cash available for dividends, but SingPost will have many options it must weigh in returning cash to shareholders and finding a balance to reinject capital into the business following the reset and this could be M&A, investment in infrastructure and expanding the group’s capacity to take advantage of the e-commerce wave, or if no options are available, to consider returning all its cash to investors after divesting of all of its assets and delist.
Following consultation with its financial advisors, BofA Securities, the board believes that the current share price does not appropriately reflect the company’s intrinsic value. “This is particularly apparent considering the value of the SingPost Centre and its Australia business and the group’s growth potential. Execution of the strategic thrusts is intended to unlock this value for shareholders,” the March 19, 2024, statement says.
On Dec 2, 2024, SingPost announced it had entered into a sale and purchase agreement with Pacific Equity Partners (PEP) to sell FMH. PEP has offered to acquire FMH at an enterprise value of A$1.02 billion ($861 million). The proposed transaction, subject to shareholder approval at an EGM on March 13, is expected to be completed on March 31.
Analysts have indicated that Famous Holdings is another non-core asset. SingPost paid around $61.7 million for Famous Holdings, acquiring a 62.5% stake on February 20, 2013. The remaining 37.5% stake was acquired later, with the final valuation of the options shares standing at $61.7 million. Famous is primarily a freight forwarder. Its performance followed the up-and-down cycles of sea freight rates. It delivered an exceptional performance from high freight rates during Covid-19 and has since normalised along with freight rates.
The local post office business’s profitability continues to be impacted by the post office network, which remains unprofitable, SingPost says in its 1HFY2025 (for the six months to Sept 30, 2024) results.
In the first half, there were also one-off costs for investments in technology capabilities and upgrades of legacy systems. The Singapore business recorded an operating loss of $0.9 million for the six months ending Sept 30, 2024, compared to a loss of $14.7 million in the previous first half.
Property revenue
As of Sept 30, 2024, the group’s investment properties were valued at around $1 billion. These include 16 properties, one of which is on Tanglin Road and SingPost Centre. While some of these properties are post offices, it is unclear if they are considered non-core. However, SingPost Centre, which comprises a retail mall, a low-rise office tower and a mail sorting area, is a non-core asset.
Property revenue, mainly from the SingPost Centre, amounted to $43 million, an increase of 13.2% y-o-y from $38 million, while property operating profit rose 11.7% y-o-y to $23.9 million from $21.4 million. The improved performance was driven by higher rental income from SingPost Centre.
Almost all the rental income comes from SingPost Centre. In its half-year results announcement, SingPost said the overall occupancy rate of SingPost Centre was 98.2% as of Sept 30, 2024, compared to 96.2% as of March 31, 2024. The retail mall and office space occupancy rates were 100% and 97.6%, respectively, compared to 99.6% and 94.8% previously.
Assuming a net property income margin of 70%, NPI yield of 6% and a capitalisation rate of 5.5%, SingPost Centre alone is likely to be valued at more than $1 billion. SingPost needs HDB approval for a sale. It is a leasehold building with around 60 years left. Commercial property is illiquid, but the building is not a high-rise as it is relatively close to Paya Lebar Airbase, which is likely to be relocated to Changi.
Market observers have said that since SingPost Centre is a non-core asset, it is likely to be divested if the board receives a price that exceeds its book value sufficiently. It remains to be seen whether SingPost Centre can obtain a GFA uplift when Paya Lebar Airbase moves. At its current allowable GFA and assuming a loan-to-value ratio of 50%, SingPost Centre alone provides an additional special dividend of 22 cents to 25 cents per share.
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In July 2024, Alibaba sold 71.5 million shares in SingPost at an average price of around 46.6 cents, decreasing its stake to 11.34%. Alibaba first invested in SingPost in 2014, acquiring a 10% stake for $312.5 million. Over time, Alibaba increased its holdings, eventually reaching 14.56%.
A special dividend appears imminent. To secure further upside and additional special dividends, the valuation of SingPost Centre would be crystallised through a divestment gain.
See also: Return to sender: SingPost packs up Aussie venture
