What You Need To Know About the Future of Singapore Post Limited

Singapore Post Limited (SGX: S08) is no longer the old-school letter delivery company we once knew. With 19 logistics centres across the Asia Pacific region, Singapore Post, more popularly known as Singpost, has positioned itself as a provider of logistics services for e-commerce activity in Asia.

The company’s transformation has attracted attention from Asia-based e-commerce players. A case in point would be how Chinese e-commerce titan Alibaba Group had emerged as a major shareholder of Singpost in the middle of 2014; just yesterday, news broke that Alibaba’s looking to further up its stake in Singpost (the transaction is subject to approval from regulators).

The increased investment might mean that Alibaba is seeing Singpost as a preferred partner in building up its business here in Southeast Asia.

All these do sound great for Singpost. But beyond the hype, it’s worth asking an important question: Is the company’s transformation showing up in terms of better results?

Over the past few years, Singpost has embarked on a plan to diversify its business away from its traditional mail services (as alluded to earlier); in addition, the firm has also been focused on getting more geographic exposure.

On both counts, it appears that the company is doing a good job. Singpost’s non-mail business has increased from 40.8% of revenue in FY2011 (fiscal year ended 31 March 2011) to 49.2% of revenue in FY2015. Its international business has also grown from just 11.5% of revenue in FY2011 to 32.5% of revenue in FY2015.

All told, Singpost has really aced it when it comes to its top-line growth: the company’s total revenue has grown by more than 60% in total from S$566 million in FY2011 to S$920 million in FY2015.  But, the rise in revenue has not been translated into higher profits – Singpost’s underlying net profit had actually inched up only 4.7% from S$150 million to S$157 million over the same period.

It’d appear that investors need to keep their expectations on the company’s growth down. There’s a very appealing story for how Singpost may be able to grow (by serving the fast-growing e-commerce market), but the fact remains that the company has not seen any significant growth in its profitability.

Meanwhile, its share price has gained 60% from where it was at the start of 2011. At its current share price of S$1.91, Sinpost is now valued at more than 28 times its trailing earnings and 3.5 times its book value. These are not value ranges that can easily be considered as “cheap.”

For some perspective – while keeping in mind that it’s not an apples-to-apples comparison – the SDPR STI ETF (SGX: ES3), an exchange-traded fund which closely mimics the fundamentals of the market barometer the Straits Times Index (SGX: ^STI), has a price-to-earnings and price-to-book ratio of 13.4 and 1.3 respectively.

Foolish Summary

Singpost has done a lot to diversify its business away from its traditional mailing model. The company is now one of the largest providers of e-commerce supply chain services in the region and has even attracted significant investments from Alibaba.

But, the company has yet to show any significant growth in its earnings and its valuation might not be considered cheap too at the moment. Investors who are looking at Singpost as a potential investing opportunity would need to take these things into consideration.

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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 writer Stanley Lim does not own any companies mentioned above.