Singapore Post (SingPost) has obtained approval for the revision of rates for domestic and international postage services with effect from 1 Oct 2014. The rate increases vary for different weights and types of articles, ranging from 12.5 – 20% for domestic mail less than 1kg and 7.7 - 33% for international airmail. We estimate a total impact of about S$17.5m per year, which is about 2.1% of FY14 revenue. The group will also give out free stamps to households and a 5% rebate on franked mail to businesses for a year, and is likely to cost about S$4-5m. We view the postage rate increase as overdue, especially if more wage increments are to be awarded to well-deserving employees in the future. We tweak our FY15- FY18 PATMI estimates up by 2- 5.5% to account for the higher postage rates and our fair value estimate rises from S$1.71 to S$1.78. Maintain HOLD.
IDA approves postage rate revisions
Singapore Post (SingPost) has obtained approval for the revision of rates for domestic and international postage services with effect from 1 Oct 2014. The rate increases vary for different weights and types of articles, ranging from 12.5 – 20% for domestic mail less than 1kg and 7.7 - 33% for international airmail. This is the first effective postage rate increase in eight years despite cost increases of nearly 50% since the last revision in 2006. Similarly, international airmail postage rates have not been revised since 2006 despite terminal due rates having risen by up to 42.6% and will rise by an additional 37% by 2017.
Impact on group revenue not significant
Only regulated mail will enjoy the rate increases, and this is about 60% of domestic mail and 30% of international mail. For international mail, only outgoing mail will be affected. Domestic mail revenue in FY14 was S$253m, and we estimate a ~S$14m revenue impact per year, keeping in mind that about 10% of domestic mail is fee-based. International mail revenue in FY14 was S$189m, and we estimate a ~S$3.5m revenue impact per year. This translates to a total impact of about S$17.5m per year (2.1% of FY14 revenue), close to management’s guidance of S$16m.
One-off costs with free stamps and rebates
To mitigate the impact of new postage rates on the public, SingPost will give out about 10m stamps to households and also offer a 5% rebate on franked mail for businesses for a year. This is likely to cost about S$4-5m for the one-year period. Hence the group will only see the full impact of rate increase from Oct 2015 (2HFY16 onwards).
Higher FV of S$1.78
With rising costs, the operating profit margin for the mail segment has dropped steadily from 36.7% in FY11 to 29% in FY14. We view the postage rate increase as overdue, especially if more wage increments are to be awarded to well-deserving employees in the future. In Feb this year, SingPost also launched a S$10m Inclusivity Fund to help about 3,400 employees (72% of workforce) who earn below $2000. We tweak our FY15- FY18 PATMI estimates up by 2- 5.5% to account for the higher postage rates and our fair value estimate rises from S$1.71 to S$1.78. Maintain HOLD.
Singapore Post (SingPost) has obtained approval for the revision of rates for domestic and international postage services with effect from 1 Oct 2014. The rate increases vary for different weights and types of articles, ranging from 12.5 – 20% for domestic mail less than 1kg and 7.7 - 33% for international airmail. This is the first effective postage rate increase in eight years despite cost increases of nearly 50% since the last revision in 2006. Similarly, international airmail postage rates have not been revised since 2006 despite terminal due rates having risen by up to 42.6% and will rise by an additional 37% by 2017.
Impact on group revenue not significant
Only regulated mail will enjoy the rate increases, and this is about 60% of domestic mail and 30% of international mail. For international mail, only outgoing mail will be affected. Domestic mail revenue in FY14 was S$253m, and we estimate a ~S$14m revenue impact per year, keeping in mind that about 10% of domestic mail is fee-based. International mail revenue in FY14 was S$189m, and we estimate a ~S$3.5m revenue impact per year. This translates to a total impact of about S$17.5m per year (2.1% of FY14 revenue), close to management’s guidance of S$16m.
One-off costs with free stamps and rebates
To mitigate the impact of new postage rates on the public, SingPost will give out about 10m stamps to households and also offer a 5% rebate on franked mail for businesses for a year. This is likely to cost about S$4-5m for the one-year period. Hence the group will only see the full impact of rate increase from Oct 2015 (2HFY16 onwards).
Higher FV of S$1.78
With rising costs, the operating profit margin for the mail segment has dropped steadily from 36.7% in FY11 to 29% in FY14. We view the postage rate increase as overdue, especially if more wage increments are to be awarded to well-deserving employees in the future. In Feb this year, SingPost also launched a S$10m Inclusivity Fund to help about 3,400 employees (72% of workforce) who earn below $2000. We tweak our FY15- FY18 PATMI estimates up by 2- 5.5% to account for the higher postage rates and our fair value estimate rises from S$1.71 to S$1.78. Maintain HOLD.
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