Top Stock Market Highlights of the Week: Singapore Post, US Federal Reserve and DBS Group

Welcome to this week’s edition of top stock market highlights.

Singapore Post (SGX: S08)

Singapore Post, or SingPost, is expanding its integrated logistics network with the acquisition of Border Express (BEX) for a maximum purchase consideration of A$210 million.

BEX is the sixth-largest national transport and distribution services company in Australia.

It has a network of 16 facilities, a fleet of more than 700 vehicles and employs a team of 1,300 staff.

BEX provides bulk express service for business-to-business (B2B) freight transfer and delivery and parcel delivery for business-to-consumers (B2C).

For the fiscal year ending 30 June 2023 (FY2023), BEX generated revenue of A$416 million along with a pre-tax profit of A$35 million.

This performance was an improvement over its FY2021 revenue of A$341 million with a pre-tax profit of just A$6 million.

The acquisition will be funded by internal cash and borrowings in Australian dollars and be accretive to earnings.

SingPost’s earnings per share for fiscal 2022/2023 for the year ending 31 March 2023 will more than double from S$0.0062 to S$0.0155 after this transaction.

Meanwhile, the postal group also released its fiscal 2024 first half (1H FY2024) earnings.

Revenue fell by 13.7% year on year to S$827.3 million while operating profit declined by 24% year on year to S$31.4 million.

Stripping out exceptional items, operating profit would have surged by 64.5% year on year to S$28.8 million.

SingPost’s underlying net profit for 1H FY2024 inched up 1.9% year on year to S$13.4 million despite losses in the postal division.

An interim dividend of S$0.0018 was declared, unchanged from a year ago.

US Federal Reserve

Investors must be breathing a sigh of relief with the US Federal Reserve maintaining its benchmark interest rate in the range of 5.25% to 5.5%.

Although this range is the highest level in 22 years, the central bank is still mulling over a possible rate hike should inflation fail to come down to the 2% level.

Officials upgraded their assessment of the US economy from “solid” to “strong”.

The change resulted from strong economic activity recorded in the third quarter with moderate job gains and a low unemployment rate.

Future rate hikes will look at a myriad of factors including the effects of previous rate hikes on the economy, lag effects with certain economic metrics, and other pertinent economic developments.

Federal Reserve officials are treading carefully as they digest a host of economic data to decide if more rate hikes will be necessary.

Investors may rejoice for now, but there could always be yet another rate hike looming on the horizon should inflation remain elevated in the coming months.

DBS Group (SGX: D05)

DBS was slapped with restrictions by the Monetary Authority of Singapore (MAS) after repeated disruptions of its banking services this year.

The central bank has imposed a six-month pause on DBS’s non-essential information technology (IT) changes except for those related to security, regulatory compliance, and risk management.

In addition, the lender will also not be permitted to acquire new business ventures during this period.

It also cannot reduce the size of its branch and ATM network in Singapore.

The reduction ban will be in force until the MAS is satisfied with DBS’s remediation plan to fix the gaps and problems within its digital network.

On the bank’s part, its management apologised for the series of digital disruptions this year with plans to roll out a comprehensive roadmap to improve technology resiliency.

When this roadmap is completed, DBS promises improved service reliability.

Should disruptions occur in future, the remediation measures will help shorten the time for recovery and customers will also have alternative means to fulfil their banking needs should a service or channel be unavailable.

If need be, physical branches will be opened on Sundays and public holidays as an alternative service channel.

Chairman Peter Seah acknowledged that DBS could have done better and that senior management would be held accountable for these disruptions through their compensation.

A special board committee was set up to investigate the disruptions back in March comprising two independent experts and an independent third party, Accenture (NYSE: ACN).

Four main areas of gaps and deficiencies were identified – technology risk governance and oversight, incident management, system resilience, and change management.

In addition to identifying the above, DBS will also strengthen system resilience with structural improvements that will take 12 to 24 months to implement.

CEO Piyush Gupta said that a special budget of S$80 million will be set aside to enhance system resiliency.

MAS has warned that during the 12 to 24 months, disruptions could still occur but DBS will be expected to promptly recover its services and communicate to its customers on time.

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Disclosure: Royston Yang owns shares of DBS Group.

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