In early February Singapore Post Limited (SGX: S08) released its third quarter earnings update for its fiscal year ending 31 March 2018 (FY17/18). The reporting quarter stretches from 1 October 2017 to 31 December 2017.
As a quick introduction, Singapore Post is a mail and logistics services provider. It organises its business into three main segments: Postal, Logistics, and eCommerce. Given that the company has three different businesses, I thought it would be useful to have a look at the performance of the individual segments.
In this article, I will be running through the eCommerce segment. (I will be covering the other segments in future articles.) [Editor’s note: Articles on the Postal and Logistics segments have been published. They can be found here and here.]
The financial performance
The table below shows the revenue, operating profit, and operating margin for the segment for the third quarters of FY17/18 and FY16/17. It also shows the revenue breakdown for the segment according to its different businesses:
Source: Singapore Post’s FY1718 third quarter earnings presentation
We can see that the eCommerce segment had experienced strong growth in revenue during the reporting quarter. And although the business did not manage to make an operating profit, the operating loss had narrowed from S$8.4 million a year ago to S$3.8 million.
Revenue for TradeGlobal in the reporting quarter was affected by the loss of two large customers in the second quarter of FY17/18, offset by the addition of new customers in the third quarter. Meanwhile, Jagged Peak’s top-line growth was driven by a surge in volume over the US peak shopping season of October to December.
The eCommerce segment’s lower operating loss was mainly due to TradeGlobal performing largely in line with Singapore Post’s turnaround business plan, and delivering good cost controls over the peak season in the reporting quarter.
What lies ahead
As investors, we rely on many tools, including management’s forecasts, to help us gain insight on what to expect for the near- to long-term performance of our investments’ businesses.
With regard to Singapore Post, this is what the company said about the future of its eCommerce segment in its latest earnings update:
“In eCommerce, the Group has acquired technologies, customers and market knowhow which enables SingPost to scale its integrated solutions by offering an omni-channel experience that will drive volumes onto its logistics network.
TradeGlobal is executing on a turnaround business plan. While business and cost initiatives are being put in place to improve performance, TradeGlobal is not expected to be profitable for the financial year ending 31 March 2018.”
In other words, investors may see revenue growth from the eCommerce segment in the near-term future as Singapore Post scales its integrated solutions. But, profitability for the segment may not be materialising yet.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.