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Singapore Post Limited’s Latest Earnings: An Overview Of The Postal Business

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 previous articles, I had discussed the eCommerce and Logistics segments. In this article, I will be running through the Postal segment.

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 Postal segment experienced a decent quarter with its 15.8% increase in revenue, and 4.0% growth in operating profit.

But if we dig further, revenue growth at the segment was driven only by the International Mail sub-segment. It benefited from higher cross-border eCommerce deliveries, due partly to a collaboration with Chinese e-commerce giant Alibaba Group for its Double Eleven event in November. The Domestic Mail business, on the other hand, saw weaker revenue due to continued migration towards electronic statements and bills.

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 Postal segment in its latest earnings update:

“The decline in domestic letter mail volumes is expected to continue, and the Group remains focused on growing the International mail segment to mitigate the drop in contribution from Domestic mail.

The International mail transhipment market remains highly competitive, and margins are relatively low. With the shift in mix towards lower margin International mail, blended Postal margin is expected to decline.”

In other words, investors can expect the International Mail business to grow going forward, which should drive top-line growth for the whole Postal segment, although declines in the Domestic Mail business will be a drag. It’s worth noting too that the International Mail business comes with lower profit margins, so operating profit growth at the Postal segment will likely come in slower than revenue growth.

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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.