Here’s why the Postman's e-commerce segment can’t celebrate just yet despite an uptick in earnings

It booked a 42% rise in operating expenses.

Singapore Post’s e-commerce segment's revenue may have shown strong momentum at 51%, but its operating loss only narrowed slightly from S$5.1m to S$3.5m.

According to a report by CIMB, this was due to the 42% qoq rise in operating expenses from investments in IT and operational capabilities and marketing and sales efforts to grow its customer base.

“Logistics operating margin fell to 4.6% (4QFY16: 6.9%) on higher depreciation and moving-in cost incurred at ECLH,” the report noted.

Meanwhile, CIMB added that logistics margin is to remain under pressure as it may take time for occupancy to ramp up at ECLH.

On the other hand, SingPost’s new borrowings may also be a sign that its deal with Alibaba is called off, CIMB noted.

“SPOST generated S$78.6m in net operating cashflow (+33% yoy). Noteworthy was the S$147m in new short-term borrowings, though net debt improved to S$135m (4QFY16: S$154m), and net gearing fell from 12.8% to 10.9%,” CIMB noted.

“The 5% share issuance and JV with Alibaba have a long-stop date of 31 Oct, and would net S$187m and S$92m, respectively, if they come through, more than enough to meet its capex needs. We see the new borrowings as a less sanguine view of the Alibaba deals coming through in 2Q,” it added.