S&P downgrades SingPost outlook to ‘negative’ on weak postal and parcel business
S&P GLOBAL Rating on Tuesday (Dec 13) revised its outlook for Singapore Post (SingPost) on weaker prospects in the group’s postal and parcel business, as well as elevated leverage in the next 24 months.
This came after letter mail volumes declined sharply during Covid-19 as companies moved towards online correspondence, said S&P, noting that such behaviours have persisted post-Covid-19.
SingPost’s business took a greater hit after it suspended its advertising mail business due to a labour shortage. Analysts noted that mail volumes for the group continued to weaken 2 per cent year on year in H1 of fiscal year 2023.
They also foresaw the group’s leverage to remain elevated in the coming years, projecting a debt-to-Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio of 3.4 to 3.8 times in fiscal 2023, up to 3.3 times in fiscal 2024 and up to 2.8 times in fiscal 2025.
This was driven by rising costs, including high conveyance costs and operating expenses such as fuel and utilities, said the analysts.
“Moreover, the loss of a major customer in the domestic e-commerce business accentuated a difficult earnings condition,” they added, noting that SingPost’s postal and parcel segment recorded an operating loss of S$12 million in the first half of FY2023.
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While the improving lockdown situation in China could provide some relief, the extent and timing of SingPost’s recovery is uncertain.
S&P cautioned that a downgrade could follow if the debt-to-Ebitda ratio does not meet expectations to drop below 2.5 times.
However, the outlook for the group could improve if it “demonstrates its ability to enhance profitability and strengthen competitive position such that it will counter the structural decline in the postal and parcel business”, added S&P.
The credit rating agency maintained its “BBB+” long-term issuer credit ratings on SingPost, as well as a “BBB-” issue rating on S$250 million senior perpetual securities guaranteed by the company.
Shares of SingPost were trading flat at S$0.515 as at 2.40 pm on Tuesday.
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