Singapore Post (SPOST SP) - DBS Research 2017-12-05: Higher Postage Rates For International Small Packets

Singapore Post (SPOST SP) - DBS Vickers 2017-12-05: Higher Postage Rates For International Small Packets SINGAPORE POST LIMITED S08.SI

Singapore Post (SPOST SP) - Higher Postage Rates For International Small Packets

  • New international small packets airmail rate structure introduced with effect from 2 Jan 2018.
  • Minimum postal charges raised; Higher charges for lighter small packets.
  • In conjunction with higher international postal settlement rates to be paid by Singpost from 1 Jan 2018.
  • Maintain HOLD, TP S$1.23.

What’s New 

New international small packets airmail rate structure introduced. 

  • Currently, small packets come under international airmail rates, which includes letters, printed papers, as well as small packets under the same pricing structure, for a maximum weight of 2kg. With effect from 2 Jan 2018, small packets will be subject to a new rate structure (see table on the next page) with increased minimum postage across the board, with increases of S$2 to S$3.50 per packet. 
  • Currently, international mail revenue contributes ~25% to Singpost’s total revenue.

Higher delivery cost due to higher international postal settlement rates. 

  • Effective 1 Jan 2018, settlement rates which Singpost pays to other postal organisations for mail delivery within their country will be raised. 
  • International postal settlement rates are determined by the Universal Postal Union (UPU) and set every four years. Increase in rates for international small packets deliveries are implemented to take into account higher delivery cost as well as increasing volumes of eCommerce packets.

Ceasing delivery of international small packets by surface mail. 

  • Singpost will also cease surface mail services for small packets with effect from 2 Jan 2018 due to low demand for such services.

Thoughts & Recommendation 

  • We had previously highlighted that impending changes to terminal dues with effect from 1 Jan 2018 may entail downside risks to our forecasts due to higher delivery costs.
  • We welcome the change in rate structure. By implementing a new rate structure for international small packets and setting the minimum chargeable weight as 100g, instead of 20g as it is under the existing international airmail rate, Singpost will benefit from increased minimum postal rates as well as higher postage rates for the lighter small packets, which we believe forms the bulk of small packet volumes. We note that for packages that are 500g and above, the new cost structure has a lower postage rate. 
  • We maintain a HOLD recommendation with TP of S$1.23, and will continue to monitor the impact of revised rates.

Sachin MITTAL DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2017-12-05
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 1.230 Same 1.230