SingPost

OCBC on 4 Jul 2012

The Infocomm Development Authority of Singapore (IDA) has revised the Quality of Service (QoS) framework for postal services, including an increase in financial penalty for breach of the standards. According to statistics collected by SingPost in recent years, the group has been delivering over and above IDA’s requirements. Should this trend continue, we do not foresee an impact from the increase in penalty. We appreciate SingPost’s dominant domestic market position, operating efficiency, and stable operating cash flows. We are also mindful of margin pressures as well as the relatively limited growth opportunities in the core mail business. However, the group is also seeking geographical and business expansion in logistics and retail. Maintain BUY with S$1.14 fair value estimate.

Revised Quality of Service Framework

The Infocomm Development Authority of Singapore (IDA) has revised the Quality of Service (QoS) framework for postal services. A key change is the increase in financial penalty for breach of the standards – a penalty of up to S$50,000/month per indicator may be imposed for non-compliance. This compares with the current penalty of S$1,000- S$5,000/month per indicator. The second key change is the requirement for SingPost to appoint an independent assessor to conduct a sampling letter test.

How will this impact SingPost?
The revised framework will be applicable to Singapore Post’s (SingPost) basic letter delivery service (effective 1 Jul 2012), and does not apply to parcel deliveries. According to statistics collected by SingPost in recent years, the group has been delivering over and above IDA’s requirements (Exhibits 1, 2). Should this trend continue, we do not foresee an impact from the increase in penalty. Meanwhile, SingPost’s compliance with IDA’s QoS framework is currently measured via a sampling letter test that is carried out by SingPost itself. Under the new framework, SingPost has to appoint an independent assessor to conduct the sampling letter test at SingPost’s cost as an additional method of measuring compliance. 

Expanding other divisions while being true to the core
A structural decline in the mail business due to e-substitution and lifestyle changes has affected personal correspondence and business transactional mail. However, growth in direct marketing mail has been observed, supporting mail volumes (Exhibits 3, 4). We appreciate SingPost’s dominant domestic market position, operating efficiency, and stable operating cash flows. We are also mindful of margin pressures as well as the relatively limited growth opportunities in the core mail business. However, the group is seeking geographical and business expansion in logistics and retail, with continued investments in its core mail business. Maintain BUY with S$1.14 fair value estima