Singapore Post (SGX: S08), or SingPost, used to be a dividend stalwart which investors relied on for steady, reliable dividends.
Of late though, the postal service and e-commerce provider has performed poorly.
The group has slashed its annual dividend from S$0.035 in fiscal 2018 (FY2018) to just S$0.0058 for FY2023.
Its share price has also fallen by nearly 29% in the past year to hit an all-time low of S$0.40.
Will Singapore Post manage to engineer a turnaround and what can investors expect from the group?
Weak operating results
SingPost announced its latest business update for the quarter ending 31 December 2023 (3Q FY2024).
Revenue dipped by 8% year on year to S$455.4 million and operating profit declined by 18.2% year on year to S$27.7 million.
However, operating profit surged 42.1% higher than the previous quarter’s (2Q FY2024) S$19.5 million.
The group attributed the weaker operating profit to the strength of the Singapore Dollar, which appreciated around 7% year on year against the Australian dollar and Chinese Yuan.
On a constant currency basis, operating profit would have dipped by around 4% year on year for 3Q FY2024.
In Singapore, the post office network remains unprofitable and is in the midst of a strategic review.
SingPost’s Australian business continued to perform steadily although its third-party logistics (3PL) business is facing headwinds and margin compression from higher expenses.
Its Australian freight forwarding business is also facing challenges with a significant decline in sea freight rates and volume.
The group’s property segment was the star performer, with overall occupancy of SingPost Centre at 96.3% as of 31 December 2023.
Scaling up its network in Australia
Although SingPost’s Post and Parcel division is the weak link within the group, management has been scaling up its logistics network in Australia.
Several acquisitions have been conducted in the past few years to help grow this aspect of the business and offset the weakness in Post and Parcel.
Back in December 2020, SingPost first acquired a 28% stake in Freight Management Holdings (FMH) and then increased its shareholdings to 51% in November 2021.
FMH is a leading fourth-party logistics (4PL) service provider in Australia that provides integrated supply chain and distribution services through its proprietary technology platform.
In January last year, SingPost raised its stake from 51% to 88% with SingPost’s CEO Vincent Phang commenting that FMH has “performed strongly” since the group’s initial investment and is driving its logistics division.
The FMH investment also comes with CouriersPlease, a first and last-mile delivery network covering 90% of Australia’s population.
By December 2023, SingPost had acquired an additional 12% stake in FMH to take its shareholdings up to 100%.
Both FMH and CouriersPlease have done well for the first half of fiscal 2024 (1H FY2024), with volumes growing by 8% and 18% year on year, respectively.
In November last year, SingPost also acquired Border Express, the sixth-largest national transport and distribution services company in Australia, for a maximum purchase price of A$210 million.
This acquisition will be parked under FMH and enhance FMH as a pan-Australian national logistics player.
An ongoing strategic review
These Australian acquisitions will help SingPost penetrate the market more deeply and develop an integrated B2B2C (business-to-business-to-consumer) logistics business.
These moves are part of SingPost’s strategic pivot to transition the group to a logistics business over time.
Meanwhile, management continues to work with the authorities to devise a framework for the long-term viability of the domestic postal service.
The overall strategic review is in its final stages and the board expects to make a formal announcement of the outcomes before the end of the financial year (i.e. 31 March 2024).
Get Smart: Logistics is a profitable business
SingPost’s Post and Parcel business may be reporting an operating loss, but its logistics business has been consistently profitable.
The logistics business reported an operating profit of S$44.3 million and S$84.7 million for FY2022 and FY2023, respectively.
It also generated an operating profit of S$33.6 million for 1H FY2024, although this was lower than the prior year’s S$41.5 million.
Investors need to be patient and wait for the outcome of the strategic review, due in around one month.
A restructuring of the Post and Parcel division could help SingPost to enjoy better overall profitability and could even help to restore its dividend over time.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
