SingPost's net profit surged 8.5% to $35.6m

But postal industry remains challenging.

According to OCBC Investment Research, Singapore Post (SingPost) reported a 32.6% YoY rise in revenue to S$203.8m and a 8.5% increase in net profit to S$35.6m in 2QFY14, such that 1HFY14 net profit accounted for 49.4% of OCBC's full year estimates.

Excluding contributions from acquisitions, the group saw a 9.6% rise in revenue, on the back of growth in e-commerce related activities. Underlying net profit increased 13.8% to S$37.3m in the quarter, in line with our expectations.

Here's more:

Topline growth but even higher expenses
Labour-related, volume-related and admin expenses continued to rise on both a YoY and QoQ basis, mainly due to the change in the group’s business model to a more diversified one, as well as growth in the lower-margin businesses.

EBITDA margin was lower at 26.6% in 2QFY14 compared to 31.1% in 2QFY13 and 28.5% in 1QFY14. Due to changing mail profile, high service expectations, keen competition and rising operating costs,the postal industry remains challenging.

Meanwhile, cashflow generation remained strong, with net operating cashflow amounting to S$59.7m in the quarter vs. S$48.5m in 2QFY13.

Margins to be pressured in the medium term.
We are seeing good topline growth with contributions from organic and inorganic initiatives, driven by e-commerce and regional growth via M&As.

However, at the same time, the group is also experiencing the impact of developmental spending and investments.

This is in addition to a rising cost environment and the fact that logistics, one of the key areas in which SingPost is growing, has a relatively lower margin compared to its mail business.

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