Automation And Parcel Network Expansion Will Drive A Stronger Long Term Logistics Business

Catalysts

About Singapore Post

Singapore Post is a Singapore based postal and logistics provider that delivers letters, parcels and e commerce solutions supported by a nationwide network.

What are the underlying business or industry changes driving this perspective?

• Tripling of small parcel sorting capacity at the Tampines e commerce logistics hub by mid 2026, together with automation that halves processing costs, positions SingPost to capture higher domestic and cross border parcel volumes and expand logistics revenue while structurally lowering unit operating costs and boosting net margins.
• Rising online shopping and marketplace activity in Singapore and the region, combined with SingPost’s ability to deliver to every address daily, may drive denser last mile routes, higher volumes per delivery point and better asset utilisation, supporting logistics earnings and profitability over time.
• Expansion of a 2,500 point island wide network of lockers, partner retail outlets and POPDrop kiosks, achieved with minimal capital outlay, increases customer stickiness and first mile and last mile transaction flow. This can lift fee income and delivery volumes without a commensurate rise in fixed costs, which may enhance net margins.
• A strengthened balance sheet with SGD 594.1 million in cash and significantly reduced debt after asset divestments provides capacity to fund logistics investments and network optimisation, supporting potential future revenue growth and operating leverage that could flow through to earnings.
• Ongoing cost discipline, organisational streamlining and rationalisation of legacy postal infrastructure, alongside continued activity in higher yielding parcel and property rental income, may shift the business mix toward more profitable segments and gradually affect group operating margins and net profit.

Assumptions

This narrative explores a more optimistic perspective on Singapore Post compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Singapore Post's revenue will grow by 1.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 32.3% today to 2.2% in 3 years time.
• The bullish analysts expect earnings to reach SGD 17.1 million (and earnings per share of SGD 0.01) by about December 2028, down from SGD 239.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SGD13.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 107.5x on those 2028 earnings, up from 3.9x today. This future PE is greater than the current PE for the SG Logistics industry at 11.5x.
• The bullish analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The structural and likely irreversible decline in letter mail volumes as communication continues to shift to digital channels, including government services moving to digital first, may outpace growth in parcels. This could erode the Logistics and Letters segment top line and leave fixed delivery infrastructure underutilized, which would weigh on revenue and operating earnings.
• Cross border e commerce volumes have already fallen by 63 percent year on year and management highlights global volatility from tariffs and geopolitical uncertainty. A prolonged downturn or structurally smaller market could leave the expanded Tampines capacity under used and reduce scale benefits, pressuring logistics revenue and net margins.
• The divestment of the Australian business and other international assets has strengthened the balance sheet but removed a major source of profit contributions. If the remaining domestic focused portfolio cannot be grown quickly enough, group earnings and return on capital may structurally reset to a lower level.
• The post office network faces a long running structural decline in agency services and transaction volumes and management acknowledges limited scope to grow rental income from these sites. Even with cost rationalisation and franchising, this segment may remain loss making and drag on consolidated net margins and earnings.
• Large capital commitments such as the SGD 30 million automation project are being undertaken while the new CEO is only starting a strategic review and while some segments are still loss making. If execution lags or competitive intensity remains high, the expected cost savings and volume growth may not materialise, which would limit improvements in operating margins and future net profit.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Singapore Post is SGD0.66, which represents up to two standard deviations above the consensus price target of SGD0.55. This valuation is based on what can be assumed as the expectations of Singapore Post's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SGD0.66, and the most bearish reporting a price target of just SGD0.43.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be SGD772.6 million, earnings will come to SGD17.1 million, and it would be trading on a PE ratio of 107.5x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of SGD0.41, the analyst price target of SGD0.66 is 37.9% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.