Medicine sector to bolster SingPost's e-commerce business

Hospitals and polyclinics have started offering medication delivery and pickup last year.

Singapore Post can find new opportunities in new areas of growth in food, medicine, and grocery delivery services, as it shifts its focus towards e-commerce and becoming a “last mile” logistics powerhouse, DBS Equity Research said.

“Medicine delivery would be feasible whilst leveraging on its existing delivery network (and potentially earnings accretive), whilst food and grocery delivery might require some investments in logistics infrastructure,” said DBS Equity Research analyst Rui Wen Lim.

The analyst’s channel checks revealed that in the industry, hospitals and polyclinics have started offering medication delivery and pickup services in the last year. “The delivery provider varies across different hospitals and polyclinics, and we believe that SingPost is able to offer an attractive value proposition for medicine delivery by utilising its existing delivery network,” he said.

Moreover, this segment is largely unconsolidated with a mix of small and big players, and different logistics partners charging a wide range of rates for home delivery. “From our channel checks, medicine delivery has been gaining traction especially for patients on long-term prescriptions who need a timely refill of medicine. Patients will benefit from not having to travel and queue to collect their medications,” the analyst added.

“We feel that the delivery service will gain relevance in Singapore, where an increasing number of chronic patients are on long-term medication,” Lim said.

Currently, SingPost’s logistics business faces tight operating margins and intense competition in Hong Kong and this trend could continue in the short term. “However, SingPost’s e-commerce logistics hub started operations in November 2016, and utilisation has been healthy which has helped SingPost in terms of cost management through automation during periods of peak demand,” the analyst added.

Management pointed out that there will be limited immediate savings through the project, with synergies realised only with scaling up. Lim noted that SingPost has seen healthy utilisation for both its warehouse space (from 45% when it first started to 96% currently).