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

Two weeks ago, Singapore Post Limited (SGX: S08) released its fourth quarter and full year earnings update for its fiscal year ended 31 March 2018 (FY17/18).

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 fourth quarter of FY17/18. It also shows the revenue breakdown for the segment according to its different businesses:

Source: Singapre Post’s FY17/18 fourth quarter earnings presentation

We can see that the Postal segment had experienced a mixed quarter. Although there was higher revenue, its operating profit actually fell.

Singapore Post attributed the segment’s top line growth to higher International mail revenue, which benefited from increased cross border eCommerce deliveries, in particular from the Chinese online retail giant, Alibaba. Providing an offset to International Mail was the Domestic Mail business, where continued migration to electronic communication methods led to lower letter mail volumes.

Since the International mail business currently has a lower margin structure than the Domestic mail business, the higher contributions from the former, coupled with the decline in the latter, led to the fall in the Postal segment’s operating profit. Singapore Post has put in place measures to improve the margin structure of the International mail business.

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:

“Domestic mail volumes are expected to trend downwards while International mail is expected to grow on the strength of eCommerce. Blended margin is expected to decline with the change in mix.”

So, investors can expect the International mail business and the Domestic mail business to continue growing and shrinking, respectively. Meanwhile, the segment’s profit margin is also expected to be lower as a result of the change in its business-mix.

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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.