Alibaba sold 72.5 million shares in Singapore Post (SingPost) (SGX:S08) for S$33.3 million on 7 June, Friday at about S$0.46 apiece.
The transaction lowers Alibaba’s stake in SingPost, Singapore’s national postal service provider, from 14.56% to 11.34%, and trims Alibaba’s holding to about 255.1 million shares. It previously held approximately 327.6 million shares.
Why is Alibaba selling SingPost
Alibaba first invested in SingPost in 2014, buying a roughly 10.4% stake for S$312.5 million at S$1.42 apiece.
In 2016, SGX gave Alibaba the go-ahead to increase its stake in SingPost, and, in January 2017, Singpost issued 107.6 million new shares at a price of S$1.74 each to Alibaba. This second investment saw Alibaba’s stake in SingPost reach 327.6 million shares.
This means that Alibaba’s cost of investment in SingPost is about S$500 million and at a price of $0.46, its investment was worth about S$150 million, a 70% mark to market loss.
In the previous decade, Alibaba invested in overseas e-commerce and logistics companies as it sought to boost its ability to handle international shipments and help customer source goods from countries where its investees are located in.
SingPost and Alibaba were to enter into a joint strategic business development framework to improve efficiency and integration in e-commerce logistics and also an end-to-end e-commerce logistics platform.
Since then, Alibaba’s Cainiao has directly expanded its last mile network, working with SingPost, as well as other logistics partners such as Roadbull, Best Inc and Park N Parcel. Cainiao has expanded their last mile network in all aspects, including couriers, collection points and pickup lockers. Cainiao has also digitalised last mile logistics on its own now, while SingPost advanced its Digital Innovation in Integrated Logistics with Generative AI from Google Cloud.
Alibaba also pared positions in other investments
SingPost is not alone, Alibaba has also pared down its stake in other companies such as Bilibili (NASDAQ:BILI), Xpeng (NYSE:XPEV), Hello Group (NASDAQ: MOMO), Perfect Corp (NYSE:PERF), Baozun (NASDAQ:BZUN), 1stdibs (NASDAQ: DIBS) and 23andMe (NASDAQ:ME).
Alvin shares a few possible reasons why Alibaba is doing this and also has a detailed list of the investments being sold by Alibaba.
SingPost’s Financial year in review
SingPost now views itself as a logistics enterprise. SingPost achieved a net profit of S$81.5 million for FY24, an increase from S$38.8 million last year. This included an exceptional gain of S$36.8 million on property revaluation.
Revenue declined from S$1.87 billion to S$1.69 billion, largely due to the reduction in sea freight revenues. However, the operating fundamentals of its core businesses have improved.
Post and Parcel revenue for both domestic and international businesses declined to S$514.1 million from S$524.5 million for the full year. The segment recorded an operating profit of S$7.5 million, largely contributed by the international business, compared to a segment loss of S$12.0 million last year.
The Domestic Post & Parcel business posted higher revenue on the back of eCommerce volume growth of 11% for the full year. It also had the benefit of the postage rate adjustment in October 2023, which helped mitigate the impact of the continued decline in volumes of letter mail and printed papers. In the International Post & Parcel business, the moderating conveyance costs, stringent cost management, as well as operational synergies, contributed to an improved performance.
Logistics revenue was lower at S$1.17 billion compared to S$1.32 billion, while operating profit declined to S$67.4 million from S$84.7 million for the full year. A large part of the Logistics business consists of the Australia business, comprising FMH and CouriersPlease. It posted revenue of A$921.3 million compared to A$866.7 million the previous year, and operating profit of A$63.2 million compared to A$62.3 million the previous year. The continued growth in the Australia business was underpinned by new customer acquisitions and volume growth, despite challenging market conditions.
In the freight forwarding business, the industry-wide contraction in sea freight rates and volumes post pandemic has led to a decline in revenue and profit contributions from Famous Holdings group. Freight forwarding revenue was lower at S$263.1 million compared to S$417.7 million, while operating profit decreased to S$22.4 million from S$43.4 million for the full year.
SingPost is down 50% in 5 years – what is SingPost’s game plan for the future?
SingPost is down 50% over the last 5 years and about 70% since Alibaba’s investment. However, this is not due to a lack of participation from Alibaba. SingPost has done poorly both locally and also in its overseas investments in countries, such as in the USA.
SingPost once held a monopoly on basic mail services in Singapore and while the monopoly has expired, it still remains the main provider of basic mail services in the country.
In the last year, SingPost took steps to address the structural decline of letter mail, which has impacted the commercial viability of postal firms globally. The postage rate adjustment in October 2023 has contributed to the postal segment returning to profitability in 3Q23 (ended Dec 23).
The sustainability of the postal segment is contingent on integration with SingPost’s growing eCommerce logistics business and agreeing on a new operating model with the regulator.
SingPost’s Board believes the share price does not appropriately reflect the intrinsic value of the company. This is apparent to the Board considering the value of the SingPost Centre, the Australian business and its growth potential.
In this regard, SingPost’s Board has 5 strategic thrusts:
1. Reorganisation of the Group – Singapore, Australia and International.
2. Strategic management of capital – Monetise non-core assets and businesses to reduce debt, support growth investments and return value to shareholders.
3. Transforming urban logistics and deliveries in Singapore – To improve network service, efficiency and sustainability.
4. Achieving scale in Australia – aims to maintain position as a top 5 logistics company
5. Building tech-driven excellence to serve cross-border customers
Closing statements
After years of decline, SingPost now wants to position itself to scale its logistics ambitions over the next few years as a pure-play logistics operator serving international markets and delivering sustainable growth to create long term value for shareholders.
The company recently carried out a strategic review and shared its focus points, which are to be executed over the next 3 years. With the company and the Board taking steps to scale the company and position for sustainable growth, SingPost could finally be one to look out for.
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