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3 Reasons to be Optimistic About Singapore Post Limited  

Shares of Singapore Post Limited (SGX: S08) have declined by over 23% since the start of 2016.

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

In the fourth quarter of its fiscal year ended 31 March 2017 (FY16/17), 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 FY16/17. The charge was taken after TradeGlobal failed to meet the company’s growth expectations. Fortunes did not improve in the first quarter of FY17/18. Singapore Post posted a 23.2% decline in operating profits.  

But amid the gloomy clouds lies a silver lining.

1. The AliBaba Effect – click here

2. SPC retail mall coming online – click here

3. Improvement in free cash flow

In the first quarter of FY17/18, Singapore Post posted a 133% increase in free cash flow, recording $32 million.

Source: Singapore Post’s earnings presentation

The increase in free cash flow came primarily from lower capital expenditure. In the first quarter of FY16/17, Singapore Post spent $64.8 million in capital expenditure, but the figure declined to $26.4 million in the latest quarter. Chief financial officer Mervyn Lim noted:

“The Group recorded lower capital expenditure with the completion of the Regional eCommerce Logistics Hub last year.”

Singapore Post also expects free cash flow to be higher for the full fiscal year. Lim explained:

“ … most of our committed capex projects had been completed. The remaining one is SPC retail mall and after that will be maintenance capex, so you will definitely see capex coming down and therefore free cash flow improving.”

According to Lim, there is some residual capital expenditure for the SPC mall, but overall expenditure will come down for the full fiscal year. As investors, we would prefer to see the operating cash flow line improve as well.

Given the challenges that Singapore Post is facing, the improvements in free cash flow is a welcome sight.  

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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.