$$$ KPO and CZM $$$: Unethical SingPost

Wednesday, February 13, 2019

Unethical SingPost

We made our first transactions for the year and you might have guessed it based on the title of the post.

After holding it for 512 days (~1+ years) and including all the dividends collected, the total return is -26.3% and the annualized return is -19.5%. CZM has been sharing lots of news on SingPost and insisted that we should sell SingPost. You know - happy wife, happy life.

SingPost apologises after getting caught trying to trick man who paid S$7,000 to distribute flyers
- SingPost fined S$100,000 for not delivering mail on time in 2017
Mechanical fault caused letterboxes to be left open in Bedok

CZM's point of view is their business will continue to decline because people don't like doing business with unethical people/company? Regardless, looking at SingPost's latest Q3 financial statement, it might be true to a certain extent.

At one glance, it may look like its business is improving with net profit rising but if you were to look deeper...

We can see that their operating expenses have increased but its underlying net profit has actually decreased. Underlying net profit is a more accurate measure of its business because it does not include exceptional items which are one-off items such as asset impairment, fair value changes on investment properties, gains or losses on sale of investments and property, plant and equipment and M&A related professional fees.

SingPost has also recently announced immediate measures to improve service quality.

The way I see it is that their operating expenses will definitely increase further without any guarantee that their revenue/net profit will improve accordingly (at least not in the near future)...

SingPost's current dividend policy (changed 2 years back) is based on a payout ratio ranging from 60-80% of the underlying net profit for the financial year.

The payout ratio for last year was already ~75.6% (3.50 / 4.63). Assuming if operating costs increase without an increase in underlying net profit, there is also a possibility where the EPS will drop and DPS will be cut again.

Based on the current price of $0.95, its dividend yield would be ~3.68% (assuming dividend is kept constant at 3.50 cents per share) which is lower than our target dividend yield of 5% hence there is really no reason to hold on to it.

Bye SingPost!

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