Sale plans put bounce in SingPost's share price

Singapore

PUNTERS are rejoicing over news that mainboard-listed Singapore Post (SingPost) has decided to sell off its struggling US units. The counter leapt to S$1.06 - a level not seen since last October - at Thursday's open, after the move was disclosed overnight.

It eventually closed the day, up 3.52 per cent at S$1.03, with 19.6 million shares changing hands.

Just dropping its loss-making e-commerce businesses in the United States could lift SingPost's earnings by about 30 per cent, based on figures for the nine months to Dec 31, 2018, markets watchers have noted.

But they also warned that there is still much uncertainty in the plan to offload the two subsidiaries, Jagged Peak and TradeGlobal, in which SingPost first took stakes in 2015.

Doubts over SingPost's ability to find a buyer could still be an overhang on the stock, CGS-CIMB analyst Ngoh Yi Sin told The Business Times over the phone. She added that the downside risk to the share price is "quite limited" at this point, but a re-rating is unlikely until there is more clarity on the outcome of the sale efforts.

BT had earlier reported that there are no potential takers lined up for Jagged Peak and TradeGlobal as yet.

Ms Ngoh expects the sale process to take around a year, with SingPost likely to keep running up losses - albeit narrowing ones - until FY2021. She added that it might also have to write off investments made to turn the US e-commerce arm around.

But SingPost must find a balance between sale price and the time it can afford to keep losing money, DBS analyst Sachin Mittal told BT in an e-mail.

Activist fund Quarz Capital, which has a long position on SingPost, has recommended a sale of the e-commerce businesses to a strategic buyer. An earn-out clause could also yield better recovery of the acquisition costs, it added in a research note.

The book value of Jagged Peak and TradeGlobal has been pegged at between S$90 million and S$100 million, although "one can't rule out one-off losses or gains on the sale", Mr Mittal remarked in a report on Thursday.

"If they can sell at book value, that's not bad already," said Ms Ngoh, noting that SingPost had already warned of a possible impairment.

There are other urgent question marks hanging over SingPost's future.

"People need to see where growth can come from," said Ms Ngoh.

Mr Mittal warned in his report of a slowdown in international mail growth, on higher terminal dues.

Efforts to boost local service standards, such as higher wages and headcount for postal delivery staff, could also hit profits to the tune of S$5 million to S$10 million, he said.

Quarz called for "deeper integration of both postal and last-mile services" and a greater emphasis on SingPost's property portfolio, which is the group's smallest segment.