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2 Key Things Investors Should Know About Singapore Post Limited’s Future

Singapore Post Limited (SGX: S08) is looking to transform its business from its traditional postal services to eCommerce and logistics services.

In a recent investor presentation, Singapore Post had one slide that captured the core components of its business transformation. The firm will be looking to protect its core business, growing into new businesses and unlock value from its existing assets.    

Source: Singapore Post’s earnings briefing

1. Protect the core – click here

2. Grow the wings

The second part of the strategy is about growing its new businesses, that is the eCommerce and logistics services. The logistics business comprises of Quantium Solutions, Couriers Please, SP parcels, Famous and others. On the eCommerce side, Singapore Post has TradeGlobal, Jagged Peak and SP eCommerce.

In its latest earnings briefing, group chief financial officer Mervyn Lim said that Singapore Post has been investing in its logistics network:

“Over the past few years, we have built out an eCommerce logistics network spanning 19 markets. Partly as a result of costs from planned investments in our network, Logistics margins have declined.”

The plan is to increase the traffic and volume in its network to the point where Singapore Post can benefit from economies of scale. Lim said:

“The focus for SingPost moving forward is to drive traffic and volumes onto our eCommerce logistics network and increase utilisation of existing infrastructure, so as to benefit from greater economies of scale and operating leverage.

It will take time for the Logistics segment to grow its profit contribution while it executes on its plans.”

As it stands, the logistics segment is in investment mode, and might not show meaningful progress in profits in the near term.

Like most businesses, it is not a sure bet too. While Singapore Post is expected to benefit from the growing eCommerce trends, Lim expects competition to keep margins low:

“While the Logistics segment is expected to benefit from growing eCommerce trends, the industry is likely to continue to experience tight operating margins and intense competition.”

Check back soon for the final component of its transformation strategy.

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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.