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5 Things Investors Should Take Note about Singapore Post

Ser Jing - Singapore Post Full Year Results, Mailman's Here with Higher Sales but Lower Profit (pic)

Singapore Post (SGX: S08), a leading provider of mail, logistics, and retail solutions in Asia, conducted its Annual General Meeting (AGM) this morning. Presentations slides for the meeting were released, so let’s take a look at five salient points from the slide-deck in addition to the company’s latest full-year earnings release for the financial year ended 31 March 2014 (FY 13/14).

1. Recently, Singapore Post linked up with Alibaba, one of the biggest e-commerce companies in the world. This signifies a strong entry into e-commerce for Singapore Post and also marks the third year of transformation for the firm.

The main reason for the transformation is to reduce the company’s reliance on its traditional postal business which is seeing a lot of operational difficulties; an example of which is a second annual decline in domestic (Singapore) mail volume. On the transformation front, progress is certainly being made; mail revenue accounted for 55.5% of the company’s total sales in FY 13/14 as compared to 62.9% in the previous year.

2. Since 2003 (the year it got listed), Singapore Post’s total shareholder return, which includes capital gains and dividends, stands at 320%.

3. Free cash flow earned by the company has increased from S$150.5 million in FY 11/12 to S$204.1 million in FY 13/14. Singapore Post said that its healthy cash flows supports its minimum annual dividend of S$0.05 per share.

The company has promised that its minimum annual dividend will continue “barring unforeseen circumstances.” For the past 8 years, Singapore Post has been paying an annual dividend of S$0.0625 per share; this translates to a dividend yield of 3.5% at the company’s current share price of $1.765. Incidentally, the firm is currently valued at 26 times its historical earnings.

4. Some challenges in Singapore Post’s operating environment remain. For one, operating costs are rising; in FY 13/14, administrative and other expenses surged 26.1% to S$30.7 million. Furthermore, as discussed above, domestic mails volumes are decreasing and even though Singapore Post is undergoing a transformation into new areas like logistics and e-commerce, those are still very competitive spaces. Lastly, being a public service (delivery of mail) outfit, there are high service-quality expectations from customers; that might be hard to upkeep especially given declining mail density.

5. Going forward, the firm will look into further growing its e-commerce logistics business; will manage costs by focusing on productivity and efficiency; and it will be committing a S$100 million investment to improve its postal infrastructure and service quality and increase innovation.

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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 Sudhan P doesn’t own shares in any companies mentioned.