Singapore Post (SGX: S08), commonly known as SingPost, is usually the first brand that comes to your mind when you are dealing with mail parcels. It is also often a favorite for yield-hungry investors due to its stable business churning free cash flows annually and paying consistent dividends of 6.25 cents (5 – 7% depending on stock price) throughout the years.
However, with emails practically replacing physical letters as a mode of communication, SingPost has been facing a persistent decline in mail volumes for the consecutive sixth quarter and the trend is expected to continue. Investors are worried as to whether SingPost is already a sunset industry (one that has passed its peak).
So what is in the pipeline for SingPost to continue growing? The management has been focused on transforming the company into a regional leader in the area of e-commerce through four significant acquisitions recently. Here’s what it has done:
1) Novation Solutions
SingPost has invoked improvements into the traditional mail solutions with offerings such as SMS Mail, ScanDelight and Post-a-Card. In addition, they also acquired Novation Solutions – a Hong Kong-based security printing, document management and transaction mail provider, to develop a wider spectrum of digital services.
2) Quantium Solutions
SingPost is pushing its regional and diversification efforts with key focus on the e-commerce and e-fulfillment segment across Asia Pacific through Quantium Solutions. Quantium Solutions has an established network of offices in 10 Asian countries and provides a range of value-added services similar to Singpost.
3) General Storage
General Storage is a self-storage provider operating the Lock+Store brand. This acquisition offers synergies with SingPost’s existing self-storage business S3 and should also strengthen its capability to provide expanded service solutions to more individuals and SME businesses.
4) Famous Holdings Pte Ltd
In order to enhance its e-commerce logistics capabilities in regional fulfillment and warehousing, SingPost amassed a 62.5% stake in Famous Holdings, an established Singapore-based sea freight consolidator and forwarder with offices in six countries.
SingPost’s transformational efforts seemed to be working as it recognized 13.9% revenue growth in FY 2013, although net profit only increased 4.1% (after adjustment for one-off items).
It has been driven by the increased e-commerce activities and contributions from new acquisitions, despite the continuous decline in letter volumes. The diversification into regional markets is also paying off as revenue contributions from overseas increased from 12.9% of revenue to 19.1%.
As the acquisitions are relatively small and still in the early stages, more needs to be done to significantly contribute to SingPost’s bottom-line. In the meantime, we can watch to see how its transformation plays out.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.