Can Singapore Post Limited Turn its Fortunes Around?

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Since the start of 2012, Singapore Post Limited (SGX: S08) has seen its share price gain some 87%. In comparison, the Straits Times Index (SGX: ^STI) has increased by a much less impressive 26%. Given Singapore Post’s share price movements alone, it’s easy to assume that the mail delivery and logistics outfit has experienced outstanding growth in its business.

Unfortunately, that’s hardly the case. Singapore Post had earned a net profit of S$161 million for the financial year ended 31 March 2011 (FY2011); its profit has since declined by 20% to S$128 million for FY2014.

As a company’s share price is tethered to its corporate performance over the long-term, it would thus make sense for investors to question if Singapore Post can ever turn its business fortunes around. With the release of its first quarter results yesterday, let’s see if any answers can be found.

Singapore Post’s first quarter

The company operates in three business segments: Mail; Logistics; and Retail & eCommerce.

For the quarter ended 30 June 2014, total revenue increased by 4.8% from S$201.3 million in the previous year to S$210.9 million. Even though Singapore Post’s traditional postal business continued to decline, growth in ecommerce related activities had helped to prop up sales.

Singapore Post’s Mail business contributed to the bulk of its total revenue at 58.4%. Revenue from domestic mail declined but overall mail revenue went up by 7.4% to S$123.2 million due to growth in ecommerce related transhipment business, which increased 23% year-on-year, and higher one-off corporate postings due to the Personal Data Protection Act which came into effect last month.

Revenue from Logistics rose by 4.1% to S$97.6 million on the back of growth in contributions from ecommerce logistics activities from Quantium Solutions, Famous Holdings, and Lock+Store. The three subsidiaries of Singapore Post are involved with domestic parcel, freight forwarding, and self-storage businesses respsectively.

Under Retail & eCommerce, revenue grew 9.7% to S$22.8 million. Higher ecommerce and financial services revenues offset slumps in revenue from retail and agency services.

The headline number for Singapore Post’s net profit for the quarter is S$39.2 million, which represents a growth of 5.1% from a year ago. But if the company’s bottom-line had been adjusted for one-off items like a gain on the sale of property, its net profit would have been flat at S$36.2 million instead. This happened despite a growth in revenue because operating expenses had increased by 8.6% to S$177.9 million mainly due to increased labour costs from additional postman hires and higher overtime costs to enhance service quality.

Net cash from operating activities had declined by 11.9% year-on-year to S$51.3 million. But despite that, Singapore Post’s balance sheet had improved compared to a year ago. As of 30 June 2014, the company had S$236.9 million in debt with a cash balance of S$446.7 million, translating to a healthy net cash position of S$209.8 million. In contrast, Singapore Post’s net cash balance was at just S$155 million a year ago.

An interim quarterly dividend of 1.25 Singapore cents per share will be paid out to shareholders. This translates to a dividend yield of 3.2% based on Singapore Post’s current share price of S$1.75.

Singapore Post’s future

Due to the poor showing in the mail segment, Dr Wolfgang Baier, Group Chief Executive Officer of SingPost said that the firm is “investing S$100 million over three years from FY2013/14 to upgrade the postal infrastructure and improve service quality and productivity in Singapore.” Only time will tell if the investment will help SingPost to revive its mail business, which contributes to the bulk of its revenue.

The company has labour cost issues to grapple with, in addition to having to deal with a secular decline in domestic mail volume. But on the brighter side, Singapore Post’s recent partnership with Chinese e-commerce titan Alibaba might possibly open up a whole new world of regional e-commerce-related opportunities for the latter.

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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.