Concerns linger over SingPost despite improved corporate governance

Investors keep an eye for updates on the Alibaba deal.

SingPost has implemented recommendations from the corporate governance (CG) review conducted by Heidrick & Struggles within the proposed 3-month time frame. But while better CG could ease some concerns, all eyes will be on the Alibaba deal, potential goodwill impairment and dividend cuts, said CIMB.

The research firm also noted that while recommendations have been largely implemented, there are still recommendations that have not been met.

The first two recommendations not met, it said, are on strategic alignment and agility, and partnership between the Chairman and CEO, which understandably will only be implemented when the new CEO comes on board at the year-end.

The third, it added, is the appointment of a director with broad P&L leadership experience and e-commerce logistics experience.

"While the new directors add to diversity and strengthen the board’s financial and legal capabilities, we think the main letdown is the lack of experience in the e-commerce or logistics business," said CIMB.

Furthermore, all eyes will be on the 31 Oct deadline for SingPost's two deals with Alibaba -additional 5% share issuance at S$1.74/share, and sale of a 34% stake in Quantium Solutions under the JV agreement.

"With Alibaba’s recent investment in Lazada, we think it no longer makes strategic sense for Alibaba to continue with the JV given the overlap in ASEAN logistics network between Lazada and SingPost," CIMB said.

CIMB also added that SingPost is reviewing its dividend policy and is likely to shift to a sustainable payout ratio rather than a fixed DPS.

"We think a dividend cut in FY17 is likely as the current 7 Scts DPS implies a payout ratio above 100%, based on our current EPS forecast," it said.

Lastly, as the new CEO comes on board at year-end, CIMB thinks impairment of goodwill could be on the cards to ease pressure and drive synergies from recent acquisitions.

"We would especially watch the acquisitions that SingPost likely overpaid for, including TradeGlobal and Couriers Please," said CIMB.