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The past two years had been of great chaos for SingPost as it endured a significant management upheaval, a special audit, massive impairment of an overseas acquisition and adjustment of a long-standing company dividend policy.  For a country that prides itself of being world-class efficient, the mess in Singapore’s national postman certainly raised a lot of eyebrows among concerned investors.

On looking back, the appointment of Dr Wolfgang Baier as CEO back in 2011 could be a knee-jerk attempt to re-invent the mailing company into an e-commerce company in light of consistently falling revenue from domestic mails. His appointment was itself surprising given his young age and the perceived lack of C-suite experience.

When Wolfgang was appointed as CEO, he was only 37 and was from a management consulting firm, McKinsey & Company. Given SingPost’s venerable standing in the industry, attracting a more experienced business leader should not be a challenge. To be frank, I have no objections to foreign talents taking on top positions in Singapore companies. However, Wolfgang lasted only four years and resigned abruptly in end 2015, leaving Mr Mervyn Lim to cover his CEO duties for one year.

SingPost

During Wolfgang’s tenure, SingPost had mixed financial performance, with net profit falling from $160 million in 2011 to $141 million in 2013 and then rising to $161 million in 2015. SingPost also did not progress nor transformed itself into an eCommerce player as envisioned under his leadership.

Nevertheless, the appointment of Wolfgang seemed to have a positive effect in the stock market as the share price surged from $1.10 in 2011 to a record high of $2.14. Those who bought the shares in 2011 and sold them off in 2014 would have made about 100% profit. But then things started to turn unexpectedly sour as SingPost navigated through unchartered waters.

During Wolfgang’s reign, two assets were acquired and they nearly pushed SingPost to the brink of disaster. In late 2015, a special audit was convened to look into a possible lack of interest disclosure by one of its former directors, Keith Tay, concerning the acquisition of FS Mackenzie in 2014.

Apparently, Mr Tay held 34.5 per cent of Stirling Coleman, which advised FS Mackenzie’s seller. That audit revealed that there were no prescribed policy nor procedure for the evaluation and approval of merger and acquisition activities.

The special audit raised a lot of questions on the corporate governance of SingPost. As the crisis unfolded, Wolfgang resigned, prompting the share price to plunge. Then ex-chairman Lim Ho Kee stepped down and major shareholder, SingTel, had to intervene. SingTel’s Chairman, Simon Israel was swiftly installed as the new Chairman to restore order and to stabilize the situation.

Widely regarded as a veteran, Simon Israel wasted no time in implementing various policies aimed at strengthening the corporate governance. One of the sweeping changes that Mr Israel introduced was the capping of board tenure at nine years. But it is the change in dividend policy that riled investors. The dividend policy has been changed from an absolute amount to one based on a pay-out ratio ranging from 60% to 80% of underlying net profit for each financial year, paid quarterly.

The appealing aspect of investing in this counter had been its attractive dividend pay-outs and this gave dividend investors a sense of certainty. With the recent change, SingPost’s appeal as a dividend stock may decline considerably among stock investors. But in my perspective, the new dividend policy could bode well for the company as it needs to preserve capital to build for the future.

Just when investors were about to put this dark chapter behind, another crisis began to unfold. Share price plunged once again as the company announced a stunning quarterly loss of $65.2 million. The loss came about after SingPost decided to write off $185 million for the ill-fated TradeGlobal.  It was reported that instead of a projected profit of S$9.4 million for FY16/17, TradeGlobal incurred a significant loss of S$25.8 million.

To put things into perspective, investing in technology companies involves high element of risk and picking the winner is never easy. The write-off could be necessary to pave the way for the new CEO, Mr Paul William Coutts who was previously from Toll Global Forwarding. With this impairment, it is hoped that the new CEO will be given an opportunity to start afresh and continue the transformational journey for the company.

Despite the troubles, SingPost managed to attract significant investment from e-commerce giant, Alibaba Group, which became a substantial shareholder with 14.4% stake. SingTel remained the largest shareholder, with 21.7% stake.

In my opinion, it is indeed puzzling that Jack Ma is investing in a Singapore company as our market is so small and thus the growth potential is limited. In fact, the largest South-East Asia economy is Indonesia, not Singapore. For e-commerce business, size of the market is important in order to scale. That is why Alibaba is so successful because the Chinese market is so huge. So, I am not sure the motivation of Alibaba investing in SingPost. In this world, there is no free lunch. There must be something that Alibaba expects in return for its investment.

Financial results for Q117/18 vindicated that the new CEO has his work cut out for him. Although revenue increase 6.2% to $354 million, the underlying net profit slumped to $26.9 million, a decline of 24.7% year-on-year.  The increase in revenue has been offset by the increase in expense, which increased from $297.6 million to $330.6 million. Apparently, management had not rein in cost, thereby resulting in the lacklustre financial performance.

Balance sheet remained strong with current assets at $632 million while current liabilities at $608 million. Free cash flow improved to S$32.0 million, from S$13.7 million during the corresponding period, due to lower capital expenditure with the completion of the Regional eCommerce Logistics Hub last year. Free cash flow determines the amount of war chest a company has for funding growth and is calculated by deducting the capital expenditure from the net cash from operating activities.

At this moment, SingPost share price is considered fairly overvalued, with Price/Book Value standing at 1.626 and P/E at 204.6. Return on Equity (ROE) free fell from 21% in 2014 to a shocking 1.79% in 2017. Perhaps the impairment of TradeGlobal has inflicted much damage to the financial performance and knocked the wind out of SingPost. No matter what, the leadership team must figure out the way forward in overhauling the business to stop the rot.

Read my other articles on SingPost:

  1. Horror show of SingPost
  2. Analysis of SingPost
  3. Will SingPost turn the tide?
  4. Is SingPost a value trap?

Indeed, the slew of troubles has led to the weakening in share price. If not for the recent share buy-back program, the share price would have plummeted further. SingPost is authorized to purchase up to a maximum of 227,146,452 shares and so far, 5,858,205 shares had been purchased. When a company is buying back its shares aggressively, it shows that the management is convinced that the shares are undervalued by the market. However, in this case, I am not convinced that this is the right time to enter this counter.

The TradeGlobal fiasco vindicated that SingPost has yet to morph into an eCommerce player successfully. Nevertheless, this is not to say that the company is in crisis, at least not yet.

The ingredients (in terms of network infrastructure and human resources) are there for the food to be cooked. The time has come for the cook (management) to turn up and manage the show. Will it be a happy ending? I don’t know. But time is running out for SingPost and it must quickly re-invent the wheel before technology make the business completely obsolete.

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