SingPost's turnaround may take up to three years: analyst

Its underperforming US e-commerce units will continue to weigh on performance.

It may take Singapore Post (SingPost) two to three years to overcome higher operating costs, and turn a profit, despite its dedicated cost-cutting and digitisation initiatives, a report by DBS Equity Research revealed.

Despite its revenue edging up 2.9% YoY from $1.51b to $1.56b thanks to growth in its post & parcel and property segments, SingPost’s profits sank into the red after profits plummeted 86% YoY to $18.96m in FY2018/2019 from $135.5m in FY2017/2018. Its weak performance was blamed on total exceptional losses in Q4, comprising largely of a one-off $98.7m impairment charge of its loss-making US businesses TradeGlobal and Jagged Peak.

Also read: SingPost's profits plunged 86% to $18.96m in FY2018/2019

The firm also struggled to make meaningful operating profits from the logistics segment largely due to competitive pressures which resulted in tight operating margins. Revenue from the logistics division dipped 0.3% despite the group’s freight forwarding business recording higher revenue due to an increase in freight rates.

“Competition in Hong Kong is also intense, and this trend may continue in the short term,” DBS analyst Rui Wen noted.

SingPost announced several initiatives, including increasing its delivery workforce and enhancing remuneration to improve its service levels, and ceasing performing non-contract businesses such as ad-mail, as management aims to realign priorities.

In March 2019, SingPost was fined $300,000 by the Infocomm Media Development Authority (IMDA) for failing to meet the postal Quality of Service (QoS) standards for delivery of local basic letters, registered basic letters and international basic letters in 2018.

Also read: SingPost fined $300,000 for dismal delivery service

“We expect such permanent expenses to continue weighing on its postal margins, against operating synergies from integration of its domestic post and parcel divisions,” Wen noted.

DBS Research further added that SingPost’s e-commerce segment’s operating losses are slated to continue until the firm completely exits the US market. Following a strategic review of the US businesses, SingPost announced on 4 April that it would sell Jagged Peak and TradeGlobal to refocus its efforts on Southeast Asia and Asia Pacific.

This sentiment was echoed by CGS-CIMB analyst Yi Sin Ngoh, who noted that the $9.9m provision allocated by SingPost for headcount rightsizing, closure of underperforming functions, and asset consolidation could contain US operating losses until sale completion.

In FY2018/2019, SingPost’s e-commerce revenue declined 0.3% for the full year, as the group continued to face challenges in the US amidst intensifying competitive and cost pressures and increasing customer bankruptcies in the industry. Loss on operating activities widened to $51.9m for the full year.

“According to management, there are a number of parties who have indicated interest for the US businesses’ sale,” Wen revealed. “We expect the sale to be conducted before FY2021.”