A Tale Of 2 Postal Companies: What Investors Should Know About the Change In Business Strategies For Singapore Post Limited and Pos Malaysia

Postal services can be thought of as something important and integral to a country’s economy for the most part of the last century or more.

But over the past decade or so, the emergence of the internet and digital technologies have significantly eroded the value of postal services.

A shift in strategy

This is why the main postal services providers in Singapore and Malaysia have shifted their business strategies to focus on providing logistics-related services. The two companies are Singapore’s Singapore Post Limited (SGX: S08) and Malaysia’s Pos Malaysia Bhd (KLSE: 4634.KL).

But, while the former focused on acquisitions, the latter chose to change its business organically. So how did the two different approaches fare? Let’s take a look

A comparison of approaches

In its last four completed fiscal years from FY12/13 (fiscal year ended 31 March 2013) to FY15/16, Singapore Post grew the revenue from its logistics business from S$240 million to S$630 million. That works out to a compound annual growth rate (CAGR) of 38%. Over the same period, the business’s operating profit climbed at an annual rate of 76% from S$6.9 million to S$37.7 million.

Pos Malaysia has the same fiscal-year end as Singapore Post. From Pos Malaysia’s FY12/13 to FY15/16, it grew its courier business’s revenue from RM 325 million to RM 577 million (which is a CAGR of 21%). Meanwhile, the courier business’s operating profit had remained flat at RM 55.5 million.

While Singapore Post has had the better historical record, some chinks in its armor have appeared in its most recent earnings.

In the first nine months of Singapore Post’s FY16/17, its logistic segment’s revenue grew by only 5.6%, but yet its operating profit was down by 30.2%. Moreover, the company warned that a major acquisition it made in October 2015 – Trade Global – is at “risk of significant impairment” due to unsatisfactory business performances.

On the other hand, Pos Malaysia’s courier business grew its revenue for the first nine months of FY16/17 by 25% year-on-year. The business’s operating profit enjoyed even greater growth of 166%.

A Foolish conclusion

Singapore Post’s transformation-by-acquisition strategy initially appeared to be adding more value as compared to Pos Malaysia’s more conservative organic approach. But, the latest results show otherwise.

With all these being said, it is still too early for us to conclude that organic growth is superior to acquisition growth since Singapore Post is still in the process of integrating its acquisitions. Investors may want to look back again in a few years’ time to gain a better conclusion.

If you like what you've seen, you can get even more investing insights and analyses from The Motley Fool's weekly investing newsletter Take Stock Singapore. It's FREE, so do check it out here.

Also, like us on Facebook to follow our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.