NATIONAL postal service provider announced on Thursday (May 11) that it is evaluating the commercial sustainability of its domestic postal business as part of a strategic review of its portfolio, which comes as earnings have been weighed down by losses in the postal operations.

 

SingPost delivered 28 per cent lower earnings at S$34.6 million for the second half of financial year 2023 ended Mar 31, from S$48.1 million in the year-ago period. Earnings per share for H2 fell to S$0.013, from S$0.0186 in the corresponding period of FY2022.

 

The listed firm attributed the fall in its bottom line to losses from its post and parcel business as delivery volumes fell, while operational costs within the segment rose due to upward inflationary pressures. For the half-year, the post and parcel business recorded a S$3.8 million operating loss, compared to an operating profit of S$13.6 million previously.

 

Revenue for the group stood at S$913.4 million, falling 2.2 per cent from the S$934.2 million posted for the year-ago period.

 

In a media briefing after the release of the financial results, SingPost group chief executive Vincent Phang said that the strategic review recently initiated by the board is looking at issues that would impact the entire group and portfolio of businesses.

 

&ldquo It will encompass a review of the... domestic postal service. We will be looking at our commercial levers. We&rsquo ll be looking at the cost structures. We&rsquo ll be looking at how we can potentially offer a view to commercial sustainability of this business.&ldquo

 

When asked if SingPost might divest the domestic postal business or have the government pay it a fee to provide the service, Phang said the review has just started and it is still too early to make a decision. And the helmsman, who sounded more sombre at this briefing compared to half a year ago, declined to comment on whether SingPost has discussed the matter with the government.

 

He is also unable to say when the review would be completed.

 

While the firm has leveraged its accessibility to the postal network for e-commerce delivery and enjoyed the competitive advantage when the e-commerce volumes spiked at the height of the pandemic, the fixed cost of maintaining the network is now weighing down the business as online shopping slowed.

 

&ldquo What we&rsquo re flagging today is that, despite all the e-commerce revenues and volumes, (they have) not been adequate to cover the decline in postal letter mail.&rdquo

 

Consumers have been hitting physical shops more in the post-pandemic days and have also become cautious in expenditure amid an inflationary environment, Phang has observed.

 

The post and parcel business recorded its first-ever red ink for the full year in FY2023, swinging into an operating loss of S$15.9 million from an operating profit of S$24.9 million for FY2022.

 

SingPost expects that business to be in the red as well this financial year. As to the magnitude of the financial loss, Phang said it would depend on a myriad of factors, including costs, the extent of the continued decline in domestic postal demand as well as the level of e-commerce activity.

 

The board recommended a final dividend of S$0.004 per share, subject to approval from shareholders at its next annual general meeting to be convened. The date payable and record date for the final dividend will be announced at a later date.

 

The dividend per share for H2 FY2022 was S$0.013.

 

Net asset value per share stood at S$0.6142 as at end-March, marginally higher than S$0.5812 as at end-March 2022.

 

For the full year, net profit stood at S$24.7 million, down 70.3 per cent from S$83.1 million in FY2022.

 

This was in spite of the group posting a record revenue of S$1.9 billion, up 12.4 per cent from S$1.7 billion the previous year.

 

By segment, post and parcel raked in 16.2 per cent lower revenue in FY2023, at S$521.3 million, down from the S$622.3 million in FY2022.

 

That from property business was 23.1 per cent lower at S$88.3 million, compared to S$114.9 million in FY2022.

 

The logistics segment, on the other hand, generated 32.4 per cent higher revenue at S$1.3 billion, up from S$998.5 million previously.

 

Separately, SingPost announced that it has acquired a further 37 per cent of the issued share capital in Freight Management Holdings (FMH) &ndash its fourth-party logistics service subsidiary incorporated in Victoria, Australia. This brings SingPost&rsquo s total shareholding in FMH to 88 per cent.

 

SINGAPORE Post (SingPost) reported operating profit of S$33.9 million for the third quarter ended December 2022, down 9.7 per cent from $37.5 million the previous year.

 

On Tuesday (Feb 21), the postal service provider said group revenue grew 13.4 per cent on year to S$495.1 million from S$436.6 million previously amid the seasonal peak for its businesses across its various markets.

 

Operating expenses increased by 15.3 per cent to S$460.8 million from S$399.6 million the previous year, mainly due to higher volume-related and labour-related expenses from the consolidation of its fourth-party logistics operator in Australia, Freight Management Holdings (FMH).

 

SingPost&rsquo s topline growth for the quarter was mainly driven by higher logistics revenue as FMH continued to perform well with increasing volumes from existing and new customers.

 

This helped to offset the impact from the e-commerce pullback in CouriersPlease&rsquo s business-to-consumer last-mile delivery business, along with lower revenue from the freight forwarding business Famous Holdings in tandem with a decline in sea freight rates.

 

In the post and parcel segment, cross-border e-commerce logistics volumes as well as domestic volumes fell amid a slower e-commerce retail market after coming off a high base the previous year, which was boosted by a volume surge during pandemic restrictions.

 

Property revenue also fell year on year, largely due to the deconsolidation of General Storage Company, which was divested in December 2021.

 

SingPost Centre&rsquo s overall occupancy as at end-2022 stood at 98.7 per cent, up from 96.7 per cent as at end-Q2, and 92.1 per cent as at end-2021, due to the higher take-up of office space. Its retail mall space was fully occupied as at end-2022.

 

On a quarter-on-quarter basis, group operating profit was up 10.3 per cent, while revenue and operating expenses rose 2.4 per cent and 1.4 per cent, respectively.

 

Citing high inflation and tight financial conditions, SingPost said it expects the operating environment for 2023 to remain challenging due to a weak global economic outlook.

 

The group said it will &ldquo remain vigilant and maintain financial prudence&rdquo while exploring opportunities to divest non-core assets and deploy capital into transformation initiatives for growth.

 

SINGAPORE Post (SingPost) : S08 -1.74% expects to eventually acquire the remaining 12 per cent of Freight Management Holdings (FMH), giving it full ownership of the crown jewel in its Australia venture. Expansion in Australia is helping to make up for the lack of growth opportunities in Singapore, as the postal services provider transforms into an international logistics player.

 

SingPost recently announced it will raise its stake in FMH to 88 per cent for A$175.4 million (S$163.7 million). The deal is expected to be completed in early 2023, funded by cash reserves and bank lending.

 

SingPost first acquired a 28 per cent interest in the Australian logistics player in 2020, then increased its shareholding to 51 per cent in 202

 

Some 60 per cent of FMH&rsquo s business is fourth-party logistics, using its proprietary technology platform to match corporate customers&rsquo freight profiles with the optimal logistics providers. According to FMH&rsquo s website, it operates the largest fourth-party logistics provider in Australia. It has over 150 carriers and more than 500 customers across a wide range of sectors.

 

Fourth-party logistics, also known as 4PL, refers to a business operating model in which supply chain management and logistics are completely outsourced to a single partner.

 

The remaining 40 per cent business of FMH deals in third-party logistics services.

SingPost group chief financial officer Vincent Yik did not want to commit to a timeframe on full ownership of FMH, but he told The Business Times that the purchase &ldquo will be a matter of time&rdquo .

 

The put options to sell the 12 per cent, held by FMH minority shareholders, as well as the call options held by SingPost to increase its stake, do not have an expiry date. Both options are independent, so either party can exercise them.

 

Should the put option be exercised by the minority shareholders, SingPost is committed to pay an amount tied to the performance of FMH. The better FMH performs, the more SingPost would have to pay for those shares it does not already own.

 

SingPost posted a S$9.9 million net loss in its first-half of FY2023 to September, despite its revenue having increased 31.1 per cent year on year to S$958.9 million. The red ink was due to a fair value charge of S$21 million arising from the higher put option redemption liability on FMH.

 

Explaining why SingPost agreed to pay an amount tied to FMH&rsquo s future performance, Yik said SingPost wanted to hedge its risk to make sure the investment performs as expected.

 

It is easy to see why SingPost is keen to raise its shareholding in FMH. The Melbourne-based unit has generated a three-year compounded annual growth rate of 28 per cent and 50 per cent in revenue and operating profit, respectively.

 

FMH&rsquo s revenue jumped from A$249 million in FY2020 to A$524 million in FY2022. Operating profit rose from A$17 million to A$48 million in this period. According to Yik, Australia&rsquo s fourth-party logistics market is worth slightly under A$1 billion.

 

Together with CouriersPlease, SingPost&rsquo s Australian venture that offers last mile logistics, the group is able to offer the full suite of integrated business-to-business and business-to-customer logistics solutions in the Australian market.

 

Yik said the system will become a &ldquo well-oiled machine&rdquo and enjoy a network effect &ndash increased number of participants improve the value of the service. &ldquo That is a powerful tool that we believe will be able to provide a lot of value to our customers. In time, that system can ultimately drive the performance of the entire Australian market.&rdquo

 

SingPost&rsquo s plan to raise its interest in FMH has been favourably viewed by some analysts. CGS-CIMB&rsquo s Ong Khang Chuen said FMH ties in with SingPost&rsquo s strategy of transforming into a global logistics enterprise especially in Australia, where it has established a strong presence after years of investments.

 

Ong said that the transaction will raise SingPost&rsquo s operating profit by 8 per cent for FY2024, without taking into account further profit improvement from FMH.

 

S& P Global Ratings wrote in a report that SingPost&rsquo s decision to further raise its stake in FMH removes some uncertainty over the quantum of cash payments that could be triggered by the put option.

 

The contributions from Australia to SingPost&rsquo s revenue and operating profit, including those from CouriersPlease, have ballooned. They accounted for 42 per cent of revenue in H1 FY2023, up from 17 per cent for the year-ago period and 56 per cent of operating profit, a jump from 4 per cent.

 

In contrast, the ratio of contributions from Singapore contracted. Revenue fell from 24 per cent to 15 per cent, and operating profit from 74 per cent to 35 per cent. But Yik was quick to note contributions from Singapore in absolute value have not decreased much rather, it is contributions from Australia that have risen significantly.

 

Bullish about the logistics industry&rsquo s prospects, Yik noted that while e-commerce might be impacted now that pandemic-induced lockdowns are over, online trading would still increase, albeit at a slower rate.

 

Apart from the Australian business, SingPost&rsquo s two other key pillars are international e-commerce logistics and the Singapore operations.

 

If market conditions improve, especially with China&rsquo s reopening, contributions by the international business will grow at a faster rate, if not as fast as its Australian business, said Yik, because the international market is much bigger than Australia&rsquo s.

 

Yik declined to &ldquo speculate&rdquo on whether SingPost could spin off its domestic post and parcel business, which is on a secular decline, in the same way that the now-defunct Singapore Press Holdings did with its media business.

 

Instead, he noted that SingPost has been able to leverage its postal service provider position to access the infrastructure for its domestic e-commerce logistics operations. &ldquo We are the only company in Singapore that goes to every address in Singapore&hellip every delivery so long as you make it, do it cleverly, it actually doesn&rsquo t cost us&hellip Our intent is to make sure the Singapore domestic market continues to be profitable, continues to be sustainable.&rdquo

 

On challenges, Yik said rising labour and utilities costs affect more than rising interest rates, because &ldquo we don&rsquo t have significant debt&rdquo and most of them are fixed. Therefore, raising efficiency is important. SingPost expects to do that by leveraging synergies between FMH and CouriersPlease when their operations and systems are merged.

UOB Kay Hian (UOBKH) increased its target price for Singapore Post (SingPost) : S08 0% from S$0.52 to S$0.58, while maintaining its &ldquo hold&rdquo call.

 

This came as the research house raised its revenue and net profit forecasts for SingPost from FY2024 to FY2025 to account for the group&rsquo s increased stake in its Australian subsidiary, Freight Management Holdings (FMH).

 

The research house now expects SingPost to book revenue of about S$2.2 billion for FY2024 and S$2.3 billion for FY2025, up from previous estimates of some S$2 billion in revenue for each year.

 

In a report on Tuesday (Jan 17), UOBKH analyst Llelleythan Tan said he expects SingPost&rsquo s increased stake in FMH to boost the group&rsquo s profitability from the first quarter of 2024 onwards, given the Australian subsidiary&rsquo s robust operating profit growth. 

 

His positive outlook on the group was further supported by China&rsquo s relaxation of Covid-19 policies, which Tan said will provide &ldquo favourable tailwinds&rdquo for SingPost&rsquo s international post and parcel (IPP) segment.

 

&ldquo Without sporadic Covid-19 lockdowns in key manufacturing hubs, outgoing IPP postage volumes are expected to recover, given China being SingPost&rsquo s largest IPP contributor,&rdquo Tan said.

 

However, he noted that flight capacity may take two to three quarters before it returns to pre-Covid levels.

 

In the short term, Tan expects that more narrow-bodied passenger aircrafts, instead of cargo planes, will be transiting at Changi Airport to cater to overwhelming travel demand. This would result in lesser belly hold cargo space that SingPost uses for its IPP postage.

 

To combat elevated operating costs and the recent good and services tax increase, SingPost increased delivery postage rates by 1-3 per cent for most of its services from the domestic post and parcel (DPP) segment.

 

But Tan said this is insufficient to cover rising costs and normalising DPP volumes, as domestic headline inflation is expected to remain high in the near term. 

 

In his view, additional postage rate hikes are needed to help support compressed margins and sliding DPP volumes.

 

UOBKH currently values SingPost at S$0.70, with the logistics and property segments valued at about S$1.6 billion.

 

Given that SingPost&rsquo s market cap is at around S$1.2 billion, Tan said the postal segment is undervalued by the market. Any potential reversal in postal earnings could lead to valuation upside, he added. 

 

Upon completion of the transaction, SingPost&rsquo s total stake in FMH will increase from 51 per cent currently to 88 per cent. 

 

POSTAL service provider Singapore Post : S08 -1.89% (SingPost) is looking to acquire an additional 37 per cent stake in Freight Management Holdings (FMH), a fourth-party logistics service company incorporated in Victoria, Australia, for A$175.4 million (S$161.1 million) in cash.

 

This will bring SingPost&rsquo s total stake in FMH from 51 per cent currently to 88 per cent upon completion of the transaction. 

 

SingPost, through its wholly-owned subsidiary SingPost Australia Investments (SPAI), first acquired a 28 per cent interest in FMH in December 2020. Later, SPAI raised its shareholdings to 51 per cent in November 2021, with a pathway to raise its shareholdings subsequently.

 

SingPost said on Wednesday (Jan 11) that the consideration for its latest acquisition deal will be paid out in two tranches, both of which will be funded by the group&rsquo s cash reserves and available bank loan facilities. 

 

The group&rsquo s cash reserves amounted to S$435.8 million as at Sep 30, 2022.

 

Exercise periods for subsequent offers to buy granted to FMH vendors will be advanced, and evergreen call options will be granted for the remaining 12 per cent stake as a pathway to full ownership.

 

SingPost highlighted FMH&rsquo s earnings accretion and strong financial performance since the group&rsquo s initial investment in the latter. It also said FMH has good growth momentum, evident from its increasing revenue and operating profit over the past few financial years. 

 

Subject to relevant statutory approvals, the group expects its further acquisition of interest in FMH to complete by early 2023. 

 

&ldquo The strategic acquisition of FMH is a key move in strengthening the SingPost group in the overseas logistics space,&rdquo said SingPost group chief executive Vincent Phang.

 

The acquisition will allow SingPost to offer customers technology-led integrated business-to-business and business-to-consumer logistics solutions in Australia, Phang added.

 

He said: &ldquo This would play a key role in us being a logistics player of choice in the Asia-Pacific.&rdquo

 

Besides FMH, SingPost also owns CouriersPlease, a first and last-mile delivery courier network covering 90 per cent of Australia&rsquo s population.