Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2016-10-11: Mending corporate governance

Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2016-10-11: Mending corporate governance SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Mending corporate governance


Improving corporate governance allay concerns 

  • SingPost has substantially implemented all the recommendations of its corporate governance (CG) review, concluded in Jul 2016. These swift actions should further allay CG concerns and allow the incoming CEO to focus on execution without interference from the board. 
  • Key implementations include: 
    1. appointment of three new independent directors; 
    2. establishing a new Finance and Investment Committee (FIC); and 
    3. changes in the composition of the existing board committees. 
  • Maintain BUY & DCF TP of SGD1.77 (WACC 8.7%; LTG 1.0%).


New independent directors for broader perspective 

  • The three new directors are expected to: 
    1. enhance independence; 
    2. bring broader perspective; and 
    3. increase gender diversity. 
  • Their appointments met the earlier CG recommendations to prioritise legal expertise and financial/accounting expertise. Details are as follows:
    • Mrs Fang Ai Lan (66) – Chartered accountant and director in 2 listed companies (Metro Holdings & Banyan Tree Holdings).
    • Ms Elizabeth Kong (34) – Practicing lawyer and regularly writes for legal journals.
    • Mr Bob Tan (64) - Chartered accountant & director in 3 listed companies (Ascott Residence Trust Mgmt, SMRT and Sembcorp Marine).


Forming FIC to narrow scope of SingPost ExCo 

  • Previous CG recommendation to reconstitute the SingPost ExCo as a FIC with a narrowed scope has been implemented. The FIC role is to provide the board with advisory support on M&A, finance and investment matters. This should ensure greater separation of duties between the board and management.


Revising other four board committees 

  • The other four board committees including: 
    1. Audit Committee; 
    2. Board Risk and Technology Committee; 
    3. Compensation Committee; and 
    4. Nominations and Corporate Governance Committee 
    have been revised to include the newly appointed directors. Similarly, this should ensure greater independence and bring broader perspective.


Swing Factors


Upside

  • Faster than expected turnaround of TradeGlobal, a newly acquired e-commerce enabler for fashion and lifestyle.
  • Higher than expected revenue growth in e-commerce logistics, from more customers and services.
  • Higher than expected margins for e-commerce logistics, from economies of scale and operating leverage.

Downside

  • Inability to resolve corporate governance conundrum, including board’s independence and disclosures.
  • Failure to extract synergies and integrate its largest acquisition, TradeGlobal.
  • Worse than expected deterioration in mail business before e-commerce logistics compensates.




John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-11
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.77 Same 1.770



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