SINGAPORE - S&P Global Ratings on Tuesday downgraded its long-term issuer credit rating on Singapore Post (SingPost) to “BBB” from “BBB+”, as weakness in the group’s post and parcel segment may be more prolonged than previously anticipated.
The move comes five months after the credit rating agency revised its outlook on the postal service provider to “negative” from “stable”, in view of “intensifying structural hindrances” to the segment and potential sustained earnings weakness.
S&P noted in its latest report that SingPost, through its FMH and CouriersPlease businesses, has been focusing more on the Australian logistics market, which is viewed as more competitive compared to SingPost’s traditional postal operations.
On top of being fragmented, SingPost’s market share in the sector is also seen as more nascent, as FMH and CouriersPlease do not have dominant market shares in their respective sub-markets.
This pivot to the Australian logistics market has put pressure on the group’s financial profile, where debt remains elevated at 3.1 times its earnings before interest (Ebit), taxes, depreciation and amortisation. This may only improve to a ratio of less than three times in fiscal 2025, S&P said.
In order to maintain relevant in a competitive space, SingPost may need to invest further, but doing so could increase its leverage profile. Furthermore, increasing exposure to the logistics segment may subject the company to more execution and integration risk.
That being said, S&P noted that FMH’s fourth-party logistics arm Efm performed well and is one of the top players in the niche fourth-party logistics market. FMH also posted a 16 per cent rise in revenue from existing customers and a 66 per cent increase in revenue from new customers in FY2023.
“We expect the logistics segment to remain profitable, with further growth potential and Ebit margin in mid-single digits,” S&P said.
All eyes are on SingPost’s ongoing strategic review, which could have a material bearing on the group’s future portfolio and earnings mix. This in turn would have an impact on S&P’s view on SingPost’s business risk profile.
On May 11, the national postal service provider said it was evaluating the commercial sustainability of its domestic postal business as part of a strategic review of its portfolio.
This came as the group posted a 28 per cent drop in earnings to $34.6 million for its second half ended March, weighed down by losses in its post and parcel business as delivery volumes fell. Operational costs within the segment also rose due to upward inflationary pressures.
The segment recorded a $3.8 million operating loss for the half-year period, compared to an operating profit of $13.6 million previously.
Shares of SingPost ended flat at 47 cents on Tuesday. THE BUSINESS TIMES