What Is Happening at Singapore Post Limited? 3 Slides from Management That Sum It Up

Shares of Singapore Post Limited (SGX: S08) have declined by over 21% since 2016.

Singapore Post is transitioning from a traditional postal services provider to a logistics and eCommerce services provider. But the change has not come easy. To understand what is happening, I pulled out three slides from the company’s latest earnings presentation for the fiscal year ended 31 March 2017 (FY2016/17) that will help investors understand what’s at stake.

The decline of the old

Singapore Post’s three business segments are Postal, Logistics, and eCommerce. In the company’s latest earnings briefing, deputy chief executive officer Mervyn Lim said this about the traditional postal business:

“Domestic mail revenue continued to decline with more companies implementing e-statements.

Post office products and services revenue declined by 18.3%, reflecting the shift to alternative online options such as internet bill payments.”

This is summarized in the slide below (look under the domestic mail and post office products & services sub-segments):

Source: Singapore Post’s earnings presentation

Gains in the international mail sub-segment had offset the decline in the traditional mail side. Lim said:

“This was mitigated by the increase in International mail volumes, largely driven by cross-border eCommerce-related deliveries from the Alibaba Group.”

However, the gains in revenue did not translate into profit as the international mail segment had lower margins. Lim noted:

“Operating profit declined 4.2%, largely due to the decline in contribution from Domestic mail. The decline in margins to 27.7% reflects the shift in mix from Domestic mail to lower margin International transhipment mail.”

We can see a similar story when we widen our lens to Singapore Post’s overall business.

The rise of the new

We have looked at the postal side of things above, but the Logistics and eCommerce segments are where the future of Singapore Post lies.

Source: Singapore Post’s earnings presentation

From the slide above, Singapore Post has managed to build up the Logistics and eCommerce segments to the point where revenues from them have exceeded the revenue from the traditional Postal business.

In FY2016/17, revenues from the Logistics and eCommerce segments accounted for 67% of Singapore Post’s total revenue (excluding eliminations). In fact, the Logistics segment’s revenue was than Postal’s in FY2016/17.

Clearly, Singapore Post has been working to transition its business.

But here’s the rub …

However, this does not mean that Singapore Post can walk right into a new business.

Source: Singapore Post’s earnings presentation

Although the Postal business contributed less revenue compared to Logistics and eCommerce, it still accounted for the vast majority of Singapore Post’s operating profit.

In FY2016/17, the Postal segment recorded $150.7 million in operating profit while the Logistics segment only managed to eke out an operating profit of $23.6 million. Even worse, the eCommerce segment remained unprofitable with an operating loss of $33.8 million in FY2016/17.

Therein lies the challenge for Singapore Post.

The company has to find new avenues of business to replace the old postal business which is on the decline. But, there is no assurance that Singapore Post will be successful in finding the same profits in the new businesses that it enters.

Whether or not Singapore Post can be successful remains to be seen.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.