S&P Global Ratings primary credit analyst Ong Hwee Yee has kept her “BBB” rating on Singapore Post S08 (SingPost) as she believes the group has the “flexibility” to reduce its debt. Ong has also kept her “BB+” issue rating on the $250 million senior perpetual securities that the group guarantees.
“We affirmed our ratings on SingPost because we believe the company has credible options to reduce its indebtedness,” writes Ong in her June 4 report, which is supported by her team of secondary contacts Minh Hoang and Pauline Tang.
“This is despite a weakened business position, which stems from the company's shifting earnings mix,” she adds.
Following SingPost’s strategic review announcement, the analyst believes that the group has options to manage its leverage using proceeds from divestments.
As at March 31, SingPost’s ratio of debt to ebitda stood at 4.1 times.
“Based on our sensitivity analysis, about $250 million of divestments and debt reduction could bring the ratio to under three times in FY2025 (ending March 31, 2025). Over the next two to three years, we expect the debt-to-ebitda ratio to fall below 2.5 times, commensurate with a 'BBB' rating,” she notes.
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To this end, SingPost’s financial policy actions over the coming years could have a positive effect on its credit ratios. In particular, the potential sale of SingPost Centre should provide “significant financial flexibility” to the group and “could be transformative”, says Ong.
“Should a sale occur, the way in which SingPost reallocates capital could have a material bearing on both its business and financial profiles,” she adds.
SingPost’s group CFO Vincent Yik revealed, at the group’s earnings briefing for the FY2024, that SingPost Centre is valued at just above $1.1 billion.
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“While the company's flagship property asset, SingPost Centre, provides a source of good underlying earnings stability, we believe a divestment could improve leverage materially, if SingPost uses some proceeds to reduce debt,” says Ong.
SingPost’s business risk profile ‘fair’
That said, Ong has lowered SingPost’s business risk profile to “fair”. This is reflective of the group’s shift to a more competitive logistics industry outside of Singapore.
“Our downward revision of SingPost's business risk profile assessment reflects the company's limited scale and market share within a highly fragmented and competitive Australian logistics industry. It also reflects our view that the potential sale of the SingPost Centre would reduce its overall business diversity,” she writes.
The group’s logistics segment now makes up about 67% of its revenue for the FY2024, up from the 38% in its FY2020 revenue.
To Ong, the segment will be dominated by SingPost’s exposure in Austalia, where the group has invested over the past four years.
“SingPost has boosted its growing exposure to Australia with the acquisition of Border Express (BEX Group) in March 2024. BEX Group's delivery fleet will complement SingPost's existing Australian business,” she notes.
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At home, Ong recognises SingPost’s efforts to manage its domestic postal sector, which is “no longer a drag”.
“Unlike other postal peers in the region, SingPost is not directly owned by the Singapore government and does not receive any direct government support. Nevertheless, we recognize the constructive negotiations SingPost has maintained with the government,” she says.
“An about 65% increase in the postage rate in October 2023 and improving e-commerce volume brought the post and parcel segment back to profitability in the second half of FY2024. Ongoing discussions around optimizing the postal infrastructure will help SingPost's postal business remain viable,” she adds.
“SingPost also holds the status as the sole public postal licensee, with a nationwide infrastructure network in Singapore. Compared to other pure-play logistics peers, we attribute some incremental benefit of leveraging its postal network and reputation to support e-commerce and other business growth opportunities,” she continues.
Outlook negative
Overall, Ong has maintained her “negative” outlook on SingPost as she sees the group’s credit metrics remaining weak for the current rating over the next 12 months.
There is also uncertainty as to when it will improve its credit metric levels that are commensurate for the current rating on a sustained basis.
In addition, SingPost may face the possibility of a downgrade should it fail to dispose of its non-core assets in a “timely” manner.
“A downgrade is also possible if SingPost undertakes material asset sales such as SingPost Centre that weaken its business diversity without being offset by a material improvement in the company's financial position,” says Ong.
On the flip side, SingPost’s outlook may be upgraded to “stable” if it is expected to improve its debt-to-ebitda ratio below 2.5 times on a sustained basis while still holding SingPost Centre.
Shares in SingPost closed 1 cent higher or 2.04% up at 50 cents on June 4.
