SingPost trading near all-time lows. Will Christmas bring some joy?

As we prepare to celebrate Christmas with dinner gatherings and gifting loved ones, it seems that we have been keeping the Christmas traditions alive. 

After all, Christmas is all about spending time with loved ones and showing love right?

But…do you recall that most of us used to write our Christmas wishes in a Christmas card and send to our loved ones by mail? 

There was a time where people keenly wrote their Christmas wishes and post their cards, while checking their letter boxes if friends will send them hand written cards during the festive season.

Singapore Post (SingPost), has been the de facto company handling all the domestic mails including our Christmas cards, making sure every letter including Christmas cards sent out are delivered to the recipients in a timely way.

However, its share price has fallen sharply in the past 5 years, just like our interest in writing Christmas cards. 

It is hovering at about $0.52 on 23 December 2022, significantly lower than its share price of close to $1.50 back in 2018. 

Let’s take a closer look at what is driving this share price weakness. 

What you need to know about SingPost (SGX: S08)

#1 - Mail volume falling with technology shift

Unfortunately, technology and changing consumer lifestyles have put the traditional mail industry under a lot of pressure. 

The invention of sending messages instantly initially in SMS and subsequently centralised instant messaging apps such as Whatsapp, Line and Telegram have been displacing the need for letters. 

The proliferation of emails both in leisure and business settings have also displaced the need for  ‘snail-mail’

Singapore handled about 559.3m domestic mails in 2017, but this has declined to 377.7m in 2021. 

As the sole mail handler, SingPost's business has also been put under pressure. 

SingPost's revenue from domestic mail has seen a steep decline from $229.4m in FY18 to $108m in FY22

#2 - Stemming the decline of postal mail business with acquisitions

SingPost is certainly not standing still to let the structurally challenging postal mail business send the company into oblivion. 

SingPost has been trying to restructure its business over the years by acquiring and growing new business.

In FY18, postal revenue accounted for 43% of its group revenue, but this segment's contribution (now including international parcel) has declined to 37%. 

This comes after a series of acquisitions to expand into new businesses such as logistics, freight forwarding as well as parcel delivery to offset a decline in traditional mail business. 

However, SingPost's track record with acquisitions has been mixed so far.

This is evident in the S$185m impairment charges SingPost took in 2017 for TradeGlobal, a US ecommerce firm that it bought in 2015. 

While the road to transformation has been bumpy so far, SingPost’s strategy remains the same - Nurturing and growing faster growth businesses such as ecommerce and logistics big enough to replace the declining mail business. 

#3 - Dividends cut as cash flows impacted

As SingPost undergoes its business transformation, it is worth noting that SingPost is no longer as cash generative as before.

This has led the company to try to conserve cash by reducing the dividends they are paying to shareholders. 

In FY21, SingPost has only declared S$1.8cent dividend per share, drastically down from S$3.5cents in FY18.

What would Beansprout do?

As consumers like us continue to embrace new technologies such as emails, whatsapp and virtual collaboration, the need for traditional postal services has been significantly reduced. 

This has put SingPost long term sustainability into question and raised the urgency for them to transform their business.

While there may not be a revival in postal volume this holiday season, consumer spending remains strong especially with purchases brought forward ahead of a GST hike. Why not take a look at retail REITs instead?

As the festive season approach, it would also be nice to send a Christmas card to your friends for a change, as we seem to have forgotten the excitement of receiving festive greetings physically, in a handwritten way.

Happy Holidays!