Find out how much SingPost is going to earn from its new postage rate hike

Expect a 6-7% profit jump by FY16.

A little help goes a long way for the Postman. SingPost revealed last week that it is hiking domestic and international postage rates for the first time since 2006, after battling rising labor costs and declining mail volumes.

CIMB notes that domestic postage rates will increase by 4-20 S cts while international postage rates will rise by 5-25 S cts. The registered article fee for international mail will also be raised from S$2.20.

According to CIMB, the revised postage rates will add $8m to revenue in 2HFY15 and S$16m (+1.3-1.6%) from FY16 onwards.

“On the net profit level, the impact will be more pronounced with a 6-7% upgrade to our estimates from FY16 onwards as the price increase should flow through to the bottomline. This is after accounting for the cost of the 10m free stamps in the first year,” stated CIMB.

Here’s more from CIMB:

SingPost has been challenged with a 25-32% rise in labour and fuel costs since its last postage rate hike in 2006 and this new rate hike will help SingPost to cope with cost pressures as mail volumes continue to decline.

International settlement rates or terminal dues on outbound mail have risen by 43% due to Singapore being re-classified as a “New Target Country” by the Universal Postal Union in 2012.

The rate is expected to climb another 37% by 2017, or an estimated S$35m-40m over the next 2-3 years, which we have previously factored into our forecasts.

While this news is a positive, we believe the key potential catalysts for the stock are: 1) M&A opportunities in the e-commerce logistics space, and 2) a JV withAlibaba, which can bring in more e-commerce-related volumes.