The cheque is not in the mail

Singapore Business Review - - ABACUS -

If Singpost once hoped that e-com­merce will sin­gle-hand­edly re­verse its slid­ing busi­ness prospects, it now seems as though this seg­ment will fail to de­liver. De­spite mas­sive in­vest­ments, the Post­man has suf­fered painful losses from its e-com­merce arm, prompt­ing an­a­lysts to fear that bot­tom­line growth will ar­rive slower than snail mail. “The over­all land­scape is com­pet­i­tive, while ecom­merce also met a set­back in Trade­global, which lost key cus­tomers,” says Low Pei Han, an­a­lyst at OCBC In­vest­ment Re­search. Us-based Trade­global was ac­quired by Singpost in late 2015, but it has be­come ob­vi­ous that the com­pany’s turn­around plans will take time. “In the fast-mov­ing world of ecom­merce, it is cur­rently un­clear to us if this seg­ment can turn in a net profit by FY19.”

Due to Trade­globlal’s shock­ingly poor per­for­mance, Singpost has cre­ated an in­de­pen­dent com­mit­tee to thor­oughly re­view the cir­cum­stances sur­round­ing the con­sid­er­a­tion and ap­proval of the ac­qui­si­tion. “Trade­global sig­nif­i­cantly un­der­per­formed the busi­ness case which has sup­ported the in­vest­ment,” adds Sachin Mit­tal, an­a­lyst at DBS.

Whilst Singpost’s Amer­i­can dream has failed to de­liver, an­a­lysts re­main hope­ful that lo­gis­tics will save the day for The Post­man. “On the bright side, the new re­gional e-com­merce lo­gis­tics hub is gain­ing trac­tion. Sev­eral new cus­tomers will be com­ing on board and the ware­house ca­pac­ity has reached 45%, whilst the par­cel sort­ing ca­pac­ity re­mains at around 20%,” notes John Cheong of May­bank Kim Eng. Singpost has also signed sev­eral new agree­ments for its or­der ful­fill­ment busi­ness and ex­pects more cus­tomers to come on­board in com­ing quar­ters. An­a­lysts ex­pect Singpost’s topline for lo­gis­tics to grow.

The res­i­den­tial op­ti­mist

Whilst other de­vel­op­ers are erring on the side of cau­tion, UOL has hit the gas on land­bank­ing, show­ing an op­ti­mism in the Sin­ga­pore mar­ket’s sta­bil­ity and un­de­terred ag­gres­sive­ness even in the face of still-tight­ened prop­erty mea­sures. UOL plans to launch two of its three projects next year in Sin­ga­pore – the free­hold 45 Am­ber Road site with 140 es­ti­mated units and the 99-year lease­hold Po­tong Pasir

Ave 1 site with 750 es­ti­mated units – and it has been em­bold­ened by brisk pre­sales for res­i­den­tial projects amid the muted res­i­den­tial out­look.

“De­spite tepid res­i­den­tial trans­ac­tions year-to-date, UOL’S projects have con­tin­ued to do fairly well,” says Rachel Tan, an­a­lyst at DBS. As at end of 2016, UOL has sub­stan­tially sold most of its projects that are com­pleted or cur­rently un­der de­vel­op­ment, sell­ing 484 res­i­den­tial units with $558m in value in FY16, although this was notably only half of the sales it made in FY15. “Man­age­ment has turned pos­i­tive on the Sin­ga­pore prop­erty mar­ket de­spite the gov­ern­ment stat­ing that ‘there will be no re­lax­ation of prop­erty mea­sures’ in the near term,” notes Tan. “Man­age­ment be­lieves that the Sin­ga­pore prop­erty mar­ket has found a steady state at cur­rent lev­els and the in­crease in in­dus­try sales vol­ume has been en­cour­ag­ing.”

As part of UOL’S land­bank­ing strat­egy in Sin­ga­pore, which Tan says is the most aggressive amongst large cap de­vel­op­ers, it added two en­bloc sites, Rain­tree Gar­dens and 45 Am­ber Road, which are in­tended to be launched from 2018 on­wards. Eli Lee, an­a­lyst at OCBC, says the group con­tin­ues to move units in its cur­rently launched projects. In the first quar­ter of 2017, UOL launched the 505unit Cle­ment Canopy and it had been re­ceived fairly well with 38% sold al­ready. Mean­while, the 663-unit Prin­ci­pal Gar­den is 55% sold.

No near-term respite for SIA

When Sin­ga­pore Air­lines re­vealed it would be set­ting up a ded­i­cated Trans­for­ma­tion Of­fice that would ini­ti­ate a busi­ness re­view meant to boost rev­enues and slash costs, it was clearly not meant to be a band-aid to its cur­rent wounded state. It would take years for the busi­ness re­view to be put into mo­tion and bring sig­nif­i­cant ben­e­fit to the bot­tom line. With op­er­at­ing mar­gins al­ready ra­zor thin and its flag­ship brand has failed to grow sig­nif­i­cantly in the past three years, how will SIA sur­vive the near-term tur­bu­lence?

“We re­main cau­tious on the near-term earn­ings out­look for SIA as its flag­ship pas­sen­ger busi­ness con­tin­ues to face stiff com­pe­ti­tion and soft yields, lead­ing to lower prof­itabil­ity,” says Paul Yong, an­a­lyst at DBS.

Silkair and Bud­get Avi­a­tion Hold­ings, which com­prises the soon to be merged

Scoot and Tig­erair – have been con­tin­u­ing to im­prove their con­tri­bu­tions, some­what off­set­ting the weak­ness in SIA’S flag­ship busi­ness. But some an­a­lysts are un­con­vinced that th­ese ef­forts will pro­vide im­me­di­ate re­lief.

“SIA’S strat­egy of a port­fo­lio of multi-air­lines to pro­vide con­nec­tiv­ity as well as part­ner­ships with lo­cal play­ers in key mar­kets are un­likely to bear sig­nif­i­cant fruits in the near to medium term. Even the new trans­for­ma­tion of­fice set up to con­duct or­gan­i­sa­tion-wide re­view to look at new rev­enue streams and op­ti­mise cost base will not have ma­te­rial im­pact any time soon,” says Eu­gene Chua, an­a­lyst at OCBC.

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