The cheque is not in the mail
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.