2 Reasons to be Optimistic About Singapore Post Limited  

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

Singapore Post is transitioning from a traditional postal services provider to a logistics and eCommerce services provider. But the change has not come easy.

In the fourth quarter of Singapore Post’s fiscal year ended 31 March 2017 (FY2016/17), the company took a $185 million impairment on its 2015 acquisition of TradeGlobal. This led to an 87% fall in Singapore Post’s profit for FY2016/17. The charge was taken after TradeGlobal failed to meet the company’s growth expectations.

But amid the gloomy clouds lies some silver linings.

1. The AliBaba Effect head here

2. The return of the SPC Mall

In FY16/17, Singapore Post recorded a 7.1% fall in rental and property related income, as shown below:

Source: Singapore Post’s earnings presentation

The main reason behind the lower rental and property-related income was the loss of contributions from the SPC (Singapore Post Centre) Retail Mall. The property was earmarked for development in the third quarter of FY15/16. In its original announcement, Singapore Post laid out its vision for SPC Retail Mall:

“The new retail mall at Singapore Post Centre (SPC) will offer greater convenience, choices and experiences to consumers by providing online e-merchants and offline brick-and-mortar shops all under one roof. Online shopping through e-merchants will include in-shop online ordering and flexibility in delivery and pickup timings.”

In the FY16/17 fourth quarter earnings briefing, deputy chief executive officer and chief financial officer, Mervyn Lim, recognised the loss of rental income but also said that the loss is temporary:

“In the Property & Others segment, we have a temporary loss of rental income as we redevelop SPC retail mall, which will almost double our retail space when completed.”

The new mall is expected to open with a net leasable area of 175,000 square feet. Furthermore, the reopening of SPC Retail Mall is just around the corner. Lim said:

“The retail mall at the new SingPost Centre is expected to open in the second half of the year. SingPost has appointed CapitaLand as the retail mall manager which will help optimise returns from this asset. The Group will begin to progressively recognise rental income from the second half of FY2017/18 onwards.”

At the moment, we do not have figures on how much revenue and profits the new mall will bring for Singapore Post. But at the very least, this is a bright spot for the postal services company amid the challenges that it is facing.

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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.