Singapore Post Ltd. (SingPost) is likely to wind down or sell its loss-making U.S. e-commerce business after conducting a strategic review of the unit, a Bloomberg survey reported.
SingPost, which counts Temasek Holdings Pte. and Alibaba Group Holding Ltd. as its two biggest shareholders, bought majority stakes in U.S. e-commerce companies TradeGlobal Holdings Inc. and
Jagged Peak for about US$184 million in 2015.
The Bloomberg survey was conducted after SingPost said last month it saw an impairment risk to the book value of its U.S. units. The company is now conducting a review of the business which is “expected to remain loss-making in the current financial year," Bloomberg quoted a company spokeswoman as saying.
The U.S. e-commerce business, which helps U.S. retailers including Speedo and Tommy Hilfiger manage online stores and package deliveries, has been a drag on SingPost’s profit as the unit suffered losses in each of the last three years. That’s a key reason why SingPost’s market value has more than halved since a record high in February 2015.
Market environment remains challenging
SingPost's spokeswoman Mei Yu Hong said: "The e-commerce operating environment in the U.S. continues to be challenging due to intensifying competition and rising customer bankruptcies. Impairments, if any, will be assessed based on full financial year results and future plans," she added. The company is expected to report full-year earnings results in about two months.
Analysts covering SingPost have generally welcomed the potential divestment or shuttering of the U.S. business, with two brokers, including CLSA Ltd. factoring in benefits from a possible transaction in their earnings estimates and upgrading the stock from sell to buy.
Immediate boost to earnings expected
Analysts noted that sticking to traditional businesses might work out better for SingPost as its mail unit has contributed the most to its annual operating income since 2010, the Bloomberg report said. It quoted analyst Ngoh Yi Sin of CGS-CIMB Securities SP Pte. as saying that the end of the U.S. unit is unlikely to have an "impact on the bread-and-butter" mail and package business.
"Singapore Post will have to continue to manage its service quality for domestic mail, and overall margin for post and parcel business, while looking for new growth engines," Ngoh said, adding that although there is a 50% chance that SingPost will end the U.S. e-commerce business, an exit should provide an "immediate boost to its earnings."
Nol van Fenema