For the past few years, Singapore Post (SingPost) has been struggling with inconsistent growth, owing to several reasons — from underperforming associates, high competition landscape to currently, the Covid-19 pandemic.
Although FY2020 ended March 2020 proved to be a good year for SingPost, as it hitched on the e-commerce boom amid the Covid-19 pandemic, its growth was short-lived.
This time, for its latest FY2021 results, earnings were once again down by 47.7% y-o-y to $47.6 million from $91.1 million a year ago. The group blamed this on Covid-19-related disruptions.
SingPost shareholders, who used to buy the company for its consistent dividend payout, have by now gotten used to its inconsistent earnings. The local postal carrier reached an all-time high in earnings of $248.9 million back in FY2016, which was attributable to the disposal of subsidiaries, associates and other investments. But right after that, FY2017 earnings saw a sharp decline, and the group has been on a yo-yo trajectory every year since. It seems that during the years SingPost recorded earnings growth, the group conducted a disposal, although of course there is a limit to how much of its business the group can continue to dispose.
FY2021’s results were in large contrast to FY2020 earnings, which saw a significant growth to a whopping $91.1 million, from $19.0 million in FY2019. But the increase in earnings in FY2020 was not due to higher revenue, which in fact came in 0.7% lower y-o-y. It was rather due mainly to a much lower loss stemming from its associated companies and joint venture. This was following the group’s disposal of its stake in Indo Trans Logistics Corp (ITL Corp) and ceased equity accounting for 4PX, a China-based crossborder e-commerce solutions provider.
Slowly, SingPost has been narrowing its global footprints as it disposes of its non-performing businesses. Apart from the sale of ITL Corp, which removes the group’s footprints in Vietnam, it has also in April 2019 disposed of its controlling stakes in US e-commerce businesses, Jagged Peak and Trade Global. The latter have been dragging down the group’s bottom line for about three years since they were acquired in 2015.
However, the group has been reinvesting its proceeds from its divestment in Australia. In October last year, SingPost announced its acquisition of a 38% stake in Australia-based Freight Management Holdings (FMH), a fourthparty (4PL) service company, for A$85 million ($88.6 million).
Besides being immediately earnings-accretive, the acquisition will allow the group to further scale its business-to-business-to-consumer logistics capabilities and capitalise on the growing e-commerce segment in Australia, while acquiring a complementary 4PL technology platform and distribution management solution.
Digital lifeline
Fortunately for SingPost, the Covid-19 pandemic has caused people to take their shopping indoors with e-commerce. This bodes well for the company with a surge in demand for logistics needs.
This was clearly reflected in SingPost’s FY2021 results, which saw overall revenue increase by 6.9% to $1.4 billion, led by strong e-commerce volume growth in both the logistics, as well as domestic post and parcel segments. Profit from its logistics segment surged some 303.1% y-o-y to $11.3 million, compared to a loss of $5.5 million a year ago.
In FY2021, e-commerce revenue represented 34% of total domestic post and parcel revenue, up from 21% a year ago. According to SingPost, revenue from e-commerce is starting to help offset the decline in letters and printed papers revenue. Could this mean a shift for SingPost towards becoming an e-commerce logistics provider?
In its FY2021 results presentation, Vincent Phang, SingPost's CEO for postal services and Singapore, says: “We are making plans to continue to adjust the work that we do and our operating model. Compared to decades ago, when we were purely delivering letters, now we do more. And that change will continue and at some point in time, we can definitely expect that we will be more e-commerce-dominant than letter-dominant.”
Phang says: “Covid-19 has accelerated the e-commerce trend and people have been purchasing more and having these purchases delivered to them. There is an industry-wide growth for e-commerce, and it is not just us.”
“But I think we have a clear advantage compared to our competitors. Clearly, our postal has an advantage. Also, we do a lot of e-commerce delivery that are reasonably cheap and affordable, such that when you see e-commerce platforms offering free delivery, it is probably going to be shipped by SingPost and put through the mail system,” he adds.
Phang says that the group will be riding on this rising e-commerce trend for growth and will be sprucing up its service for better customer experience, as part of the transformation SingPost is undergoing. “Customer experience has changed a lot [over the past years], because when you are receiving a letter, you will not have the same levels of expectations as compared to when you are expecting something you have bought online,” says Phang. He adds that this is where digitalisation comes in, allowing the customers to track their parcel and receive notifications on it.
What analysts say
It may be clear that SingPost’s future is in the e-commerce logistics space, but other than that, the rest of the group’s outlook is blurry. And analysts too are holding their position on the stock as they await better visibility — DBS Group Research, CGS-CIMB Research and UOB Kay Hian all have “hold” recommendations on SingPost.
DBS analyst Sachin Mittal expects a much slower earnings recovery in FY2022. “After a big 40% decline in FY2021, SingPost’s underlying net profit might recover by only 17% to $70 million in FY2022 compared to our earlier expectation of $92 million. A much slower opening of passenger flights at Changi Airport is leading to a big spike in operating costs for dispatching international posts and parcels via alternative routes. This, coupled with an absence of $24.5 million in FY2022 from the expiry of Job Support Scheme, may cap any upside to our FY2022 earnings projections,” says Mittal.
In a bid to preserve cash amid the uncertain outlook, the management has slashed dividend payout ratio to 40% from the previously guided 60%-80%, which brings dividend yield to an “unexciting” less than 2%.
Meanwhile, CGS-CIMB analyst Ong Khang Chuen says: “While SingPost managed to achieve topline growth of 4% y-o-y in 2HFY2021, supported by e-commerce volume growth in both Singapore and Australia, key negative remains higher conveyance costs for the international post and parcel business, which continued to exert pressure on profit margins.”
“In our view, the key headwind for SingPost remains the slow recovery in international passenger flight volumes out of Changi Airport. Conveyance costs remain almost twice that of pre-Covid levels as of March, and we expect SingPost to remain selective in taking orders to maintain profitability for its international post and parcel segment,” adds Ong, who believes that with the systematic vaccine roll-out in Singapore, flights through Changi airport will gradually resume in 2H2021.
UOB Kay Hian analyst Lucas Teng notes that the visibility for air freight capacity is still uncertain, which could continue to weigh on margins. Operating margins have been hit hard, falling by 5.3 percentage points to 5.6%, in spite of the positive outlook from e-commerce demand propelling the domestic post and parcel segment as well as the logistics segment.
Teng sees e-commerce as SingPost’s future. “The ratio of e-commerce to letter delivery is currently about 1:10, and this is expected to improve with a growing proportion of e-commerce postal delivery. The initial infrastructure is starting to take shape, with SingPost’s smart letterbox concept, though roll-out could still take some time,” he says.
