Parcel business could deliver SingPost from mail decline

Quantium Solutions and vPOST will leverage on SingPost's regional footprint and already analysts are seeing growth prospects from these investments.

Meanwhile, SingPost is forecasted to undertake some large-scale acquisitions this year or the next, as it is currently sitting on a cash balance of SG$617m. 

As SingPost innovates to stay afloat in the industry, they remain one of the most cost-efficient postal organisation with the costly labour cost only accounting for 31.5% of its sales.

Here's more from Maybank Kim Eng:

Five pillars, over 20 initiatives. In the face of dwindling global mail volume, SingPost’s newly-minted CEO, Dr Wolfgang Baier, has introduced the “five pillars” concept, together with over 20 initiatives, in his bid to move the company to a new business model. The five pillars are Mail, Digital Services, Logistics, e-Commerce and Retail. At the core of the strategy is diversification both geographically and product-wise.

Parcel business could take off first. E-commerce-related parcel business, which falls under the Logistics pillar, could see the highest revenue growth in the next three years. This is because SingPost’s investments in Quantium Solutions and vPOST are starting to pay off, thereby helping to mitigate the impact of the mail volume decline. Quantium Solutions has been reconfigured into an e-fulfillment service company that provides order fulfillment outsourcing for e-commerce firms.

SingPost has signed up more than 100 e-fulfillment customers in the past six months. vPOST, on the other hand, mainly serves local consumers. This service enables locals to buy goods from e-commerce companies that ship only to the US, Europe and Japan. Customers can then direct their purchases to vPOST warehouses in those countries for shipment to Singapore.

Synergy with core mail business. SingPost has already built scale and depth in parcel delivery and returns management, and this new business can have great synergies with its core mail business because both have a natural alignment in last mile delivery network. To date, there are very few players in the e-fulfillment space and hardly any have a regional footprint similar to SingPost. With the regional e-commerce market anticipated to grow at double digits, SingPost’s e-commerce-related parcel business is expected to contribute more to group revenue in the future.

Sufficient cash for acquisitions. SingPost currently sits on a cash balance of SG$617m after it issued a 10-year corporate bond worth SG$200m in Mar 2010 and perpetual securities worth SG$350m in Mar 2012. The market has been waiting for it to make some big acquisitions. However, SingPost’s purchases so far are hardly considered big-sized and the total cash spent made up just 14% of the total proceeds from the abovementioned fund-raising exercises. In this view, SingPost might embark on some major acquisitions this year or next to surprise the market. It is possible that it may target e-commerce-related companies.

Better able to cope with rising cost pressure. The success of SingPost’s transformation programme lies not just in the new revenue growth engines but also in its ability to restructure its cost base. Rising operating costs, especially labour costs, is a common theme for any industry in any country. Many investors are worried that SingPost’s achievements post-transformation would be wiped out by the unrelenting rise in costs, notwithstanding the inroads it has made in diversification and revenue growth in such a tough industry.

The company seems to have done a remarkable job in cost control. Comparing  SingPost’s labour cost with that of its global peers, it would show that SingPost has been the most efficient in managing this biggest cost item for all postal organisations. The company’s labour cost only accounts for 31.5% of its sales vs an average of 42.2% for its peers. Continued automation and geographical diversification to lower-labour-cost countries would help SingPost maintain its leadership in cost management in the future. In this way, it will continue to outperform its peers in the battle against rising cost pressure.