The Postman strikes back: SingPost hikes rates on back of plunging mail volume and surging costs

Labor and fuel costs have risen 30% since 2008.

SingPost is set to raise its postage service rates starting October 1st, marking the first time that the Postman has hiked domestic rates in 8 years.

According to DBS, the hike is in response to declining domestic mail volume and rising costs. Since 2008, labor, and fuel costs have gone up around 30% each while inflation has risen 26%.

Meanwhile, terminal dues for international mail have risen 43% and will further rise 37% by 2017. DBS estimates that about 60% of the domestic mail and ~30% of international outgoing mail is still regulated across which SPOST has raised postal rates by 12-30%.

“The hike will be effective from 1st Oct 2014 and SPOST will absorb the cost increase for SMEs in the first year. Based on last year volume, SPOST believes that annual revenue impact could be ~S$16m, however, the actual impact may be ~S$12m due to rebates to SMEs in the first year. Given that mail segment is a high margin business, this should translate into 3%/5% higher FY15F/16F EPS conservatively,” noted DBS.

Here’s more from DBS:

SPOST should command premium valuation for three reasons. Assuming that SPOST makes S$300m worth of acquisitions at 12-15x PER, it may add S$20-25m or 15-20% to our FY16F earnings.

Secondly, SPOST is incurring ~S$15m developmental expenses each year, mainly in hiring and training people which could continue for another 2-3 years. We expect SPOST to register healthy growth beyond that.

Lastly, higher e-commerce volumes could surprise in FY16F as we have assumed only ~S$50m worth of business from its Chinese e-commerce partner in our forecasts.