SingPost's turnaround may take three years as US losses widen

Higher terminal dues and tough competition in the logistics segment may further affect the firm’s business prospects.

Singapore Post’s (SingPost) turnaround could take two to three years following continued US e-commerce losses as its revenue remained flat at $54m, according to a report by DBS Equity Research.

The firm’s operating losses also widened to $11m as some customer contracts were renewed at lower rates following price pressures amidst higher transformation costs, the report revealed.

“Management has indicated that they see US businesses as an integral part of SingPost’s business and will continue to work on turning it around as it enters peak delivery season for the next eight weeks,” DBS analyst Sachin Mittal noted.

Whilst SingPost has seen solid growth at its international mail business with revenues rising 1.6% YoY to $177m, Mittal expects slower growth going forward due to intense competition and higher terminal dues which have started to affect volumes already.

SingPost’s profits slipped 12.9% in Q2 to $25.15m from $28.87m in the same period last year which it attributed to negative contributions from associated companies and ventures. Meanwhile, its e-commerce profits fell 227% to $11.23m largely due to its US businesses.

Also read: Singapore Post Q2 profits slipped 12.9% to $25.15m

“Profits declined on the back of share of $4m loss largely due to associate company 4PX which saw higher expenses to drive the growth of e-commerce volumes from Alibaba, as well as an exceptional loss of $3m relating to fair value loss on warrants from another associate company,” Mittal added.

On the other hand, the report cited that there is room for potential growth due to Alibaba which is looking to expand its regional presence. SingPost issued new shares to Alibaba as agreed in their 2015 strategic partnership, whilst Alibaba also acquired a 34% stake in SingPost subsidiary Quantium Solutions International for $86.2m in October 2016.

Meanwhile, SingPost continued to struggle with profits from logistics which remained flat at $125m due to competitive pressures which resulted in tight operating margins, the report added.

“Competition in Hong Kong is also intense and this trend may continue in the short term,” Mittal said. “SingPost continues to review unfavourable customer contracts as it tries to improve profitability.”

SingPost’s associated company in China, 4PX, will no longer be accounted for as an associate following dilution in SingPost’s stake, the report said. It revealed that as of 1 November, the firm’s shareholdings of 4PX were diluted from 30.5% to 19.7%.

“In the longer run, we believe that SingPost possesses the ability and resources to leverage on its existing network to recapture its market share in Singapore as it remains the dominant player locally with low cost of capital,” Mittal said.

SingPost has declared a final dividend of $0.5 in Q2 which is unchanged from 2017, bringing its total dividends for the full year to $1.