Broker's take: DBS says SingPost changes are 'steps in right direction'

SINGAPORE Post's (SingPost) impending changes to its products and services may lower costs for the postal service provider, although the revenue impact will be insignificant, according to DBS Equity Research.

The changes - set to take effect on Dec 2 - were announced on Wednesday as SingPost copes with the e-commerce boom and falling mail volumes.

Among the revisions are new rates for small packages as well as an end to doorstep deliveries for certain types of mail.

DBS analysts Sachin Mittal and Lim Rui Wen wrote on Thursday that the measures are "steps in the right direction", as they reduce the cost of doorstep delivery and leverage SingPost's strength in letterbox delivery.

From Dec 2, only letters and printed papers weighing up to 500g, versus up to 2kg earlier, will be accepted under the basic mail category (renamed from ordinary mail). Postage rates for such mail will stay the same at between S$0.30 and S$1.70, depending on weight and size.

Currently, heavier items between 501g and 2kg can still be sent domestically as ordinary mail, at up to S$3.35 each. SingPost will replace this option with two new categories with higher upper price limits: basic package and tracked package. Basic packages of up to 2kg will cost between S$0.90 and S$3.50 without a tracking option, while tracked packages will be priced between S$3.20 and S$4.80 and offer delivery progress tracking as well as notifications.

The DBS analysts noted that under the new rates for tracked packages, SingPost will receive 2-13 per cent more postage fees for items under 100g, but 6-14 per cent less fees for items between 250g to 2kg.

Doorstep deliveries for packages sent through the abovementioned services will effectively cease from Dec 2, as all such items will be delivered to recipients' letterboxes.

Customers will have to use the Speedpost courier service if they want doorstep delivery from Dec 2.

"This will allow the postman to be more efficient, without having to deliver to the doorstep and deal with missed deliveries," the analysts wrote.

A surge in e-commerce volumes has led to heavier loads and more doorstep deliveries for postmen, according to SingPost.

The DBS analysts added: "These changes will reduce the burden of doorstep delivery for e-commerce packages."

"As we understand, many customers prefer e-commerce packages to be delivered to the letterbox with a tracking feature, rather than having to wait at the doorstep for delivery lest they miss it," they said.

Meanwhile, the domestic registered article service - which provides additional security by requiring the recipient's signature - will be renamed Registered Service (Singapore) and be limited to just letters and printed papers up to 500g. Customers have been using this service to send packages, straining operations.

Customers sending heavier items may consider using the tracked package service for letterbox deliveries or Speedpost courier services for doorstep deliveries.

As for international airmail, SingPost's rates will also increase from Dec 2. This will account for rising rates charged by foreign postal operators to SingPost, which has been absorbing yearly increases since 2014.

Airmail rates for letters, printed papers and postcards will go up by S$0.10-S$0.20 apiece. The Registered Service (International) fee will also be revised up by S$1.10 to S$3.60, on top of applicable postage fees.

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.

"We believe the new package categories and higher international rates should be largely positive for SingPost," the analysts noted.

However, the company still faces two key headwinds: higher terminal dues slowing down international mail volumes which has been the key growth driver so far, as well as higher operating costs in order to improve service quality in Singapore, they said.

DBS maintained its "hold" call on SingPost with an unchanged target price of S$0.96 amid those headwinds. Shares of SingPost were trading flat at S$0.96 as at 3pm on Thursday.

The postal service provider may take two to three years to overcome the challenges by investing in technology, the analysts said.

"While we like its potential exit from the US business, it is difficult to see real growth drivers besides a cost-reduction programme over the next two to three years."