Weekly Analysts On Demand Series: Logistics Industry Overview and Your Stock Vote! #analystsondemand

This column is jointly written by @fayewang, @gordon_ong and @J_Chou
-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.
-Gordon has a demonstrable interest in equity investments, financial markets, and negotiating deals. As @NTUInvestmentClub president, he has an understanding of what factors drive an organisation’s success.
-Jay has an interest in global macro trends, financial markets and equity research and enjoys applying a combination of the three in his investments. His eventual investing goal is to manage a risk parity portfolio and achieve true financial freedom.

Together, they are your analysts on demand!

If you like this column, please start voting which stocks you would like them to write on in their next article! This is your chance to interact with them and they will write on the most voted stock of your choice!

How to vote: Comment on only one Logistic listed stock of your choice mentioned in the article. The most number of likes/comments by tomorrow morning will be chosen. It’s that simple!

Voting starts now and ends at tomorrow (15 June) when market opens (9am)!

Disclaimer: this article simply provided analysis on stocks from the fundamental perspective, it does not represent any buy/sell recommendation from Investingnote. *All the dollar unit ($) in this article refer to SGD.

Picture retrieved from: Transport and Storage Services Industry Infographic

The Logistics and Transportation industry is a key cornerstone of Singapore’s economy, contributing $27.9billion or 6.9% of the country’s GDP. Its strategic location and world class infrastructure meant that Singapore is a leading logistical player in the Asia Pacific region, with World Bank ranking the nation as the No.1 Logistics Hub in Asia in the 2014 Logistics Performance Index. Currently, Singapore is a prime location for major logistics firms, with 20 of the top 25 global logistics firms such as DHL, Schenker, UPS etc. conducting their operations here. Breaking down by sectors, marine cargo is the largest contributor, generating 64.7% of total turnover in the industry followed by air cargo at 17.9% and warehousing and storage at 2.5%.

In 2016, the industry received a further boost from the Singapore government, as the Ministry of Trade and Industry launched the Logistics Industry Transformation Map (ITM) scheme which aims to optimise current logistics systems through more effective resource allocation and leveraging of technology e.g. deployment of federated lockers and cloud based supply chain management. The transformation of the industry is expected to value-add S$8.3 billion, and introduce 2,000 new PMET (professionals, managers, executives and technicians) until 2020.

Source: Logistics ITM Infographic, retrieved from:

Subsector Overview

Air Cargo

Changi Airport is one of Asia’s largest cargo airports and the world’s 15th largest cargo hub by volume, handling up to 2 million tonnes of cargo annually. Global cargo market have been struggling to maintain sustained growth since the end of the global economic downturn in 2009, with air cargo volumes remaining flat due to slower rates of growth in key emerging markets, ongoing currency volatility and the reduce in demand for airfreight. In Asia, Singapore face stiff competition from its Asia Pacific competitors, notably China who has been growing at an annual rate of 13.6% and now dominate 48% of the transpacific cargo market. This has had a negative effect on local air cargo operators, with Singapore Airlines Group subsidiary SIA Cargo being unprofitable for seven of the past eight years, with yields in steady decline leading to consistent losses despite having scaled down on its operations. Nevertheless, recent events may suggest that the situation could be turning around. Changi has reported air cargo shipments rising 6.3 per cent in 2016 and a positive outlook is expected for 2017, and the recent launch of the S$140 million DHL Express South Asia Hub at Changi Airport further bolsters Singapore’s air freight industry.

Statistics retrieved from: SIA Investor Relations Annual News Release 2010-2017

Marine Cargo

Singapore boasts one of the busiest shipping ports in the world, and its status as a major transshipment hub has long been one of the bedrock of the nation’s economy. However, similar to air cargo, container throughput at Port of Singapore have seen a decline since 2014, with container throughput falling by 9 per cent due to increased regional competition and decrease in international trade amidst uncertain global market conditions. The global shipping industry has also seen a tumultuous 2016, with major Korean shipping line Hanjin declaring bankrupt and a wave of M&A consolidations amongst shipping companies. Recent developments by regional competitors also looks to threaten Singapore’s position. While the Port of Singapore has seen declining container throughput year on year, Malaysia’s Port Klang has seen an increase of 10.8 per cent in container throughput in 2016. Furthermore, China’s aggressive investments into Malaysian ports and rail links under its ‘One Belt One Road’ scheme which includes a new S$14 billion port to be completed in 2019 looks to further threaten Singapore’s position as the main trading port in Southeast Asia.

Despite the uncertain climate, there is still room for optimism as Singapore still holds a competitive advantage in terms of efficiency, security and the infrastructure of its ports. Looking towards the future, the country is improving its technology of its ports and shifting activities away from Tanjong Pagar and Pasir Panjang to Tuas by 2027 to improve competitiveness. The new Tuas port will carry nearly twice the capacity of the current ports, being able to hold 65 million Twenty-Foot Equivalent Units (TEUs) of containers annually, which will make it the largest port terminal in terms of capacity in the world.

Source: Karamjit Kaur et al. “Full steam ahead for new Tuas megaport”
Retrieved from: http://www.straitstimes.com/singapore/full...

Land Delivery and Storage

Statistics retrieved from: Singapore Statistics- Transport and Storage Services

Land based Storage and Warehousing and Postal and Courier sub-sectors are much smaller in scale as compared to their air and water counterparts, with annual operating receipts only constituting 4.3% of industry total. However, unlike air and water cargo, the land based sub-sectors have seen an increase in turnover for the past decade. For postal and courier sector, although traditional postal delivery continues to see a decline in demand, the rise of e-commerce will most likely lead to a steep rise in number of courier deliveries, hence overall turnover should see an increase in the foreseeable future. The warehouse and storage sector has been assisted by the growth in demand from the manufacturing sector but the looming supply glut caused by the introduction of new warehouse space in 2017 and tapering demands due to lacklustre global trading conditions may see a drop in turnover.

Macro Trends

Advancement in Disruptive Technologies

The development of numerous disruptive technologies has revolutionized every step of the supply chain management process. For instance, the shift to a cloud based system and utilizing the Internet of Things has allowed for enhanced flexibility and efficiency in operational management. The increased use of automation and robotics has also allowed for more effective solutions such as advanced packaging labeling and streamlining warehouse sorting. Another notable advancement is the use of drones in last mile delivery, in which companies like Singpost have been looking into. Current developments of 3D/4D printing, Blockchain and self-driving cars are also set to further revolutionise the industry. Unfortunately, Singapore and Southeast Asia in general has been a laggard in implementing such technology, resulting in the region lacking a proper, cohesive logistics infrastructure that gives retailers an entry point into the region. Instead of a single network, each individual market requires separate contracts and localisation which proves expensive for the retailers and would eventually be passed on as additional cost to consumers. This potentially could slow the growth of the industry in the region. The Singapore government has been implementing steps to correct this, with the launch of The Logistics Industry Transformation Map in 2016 which aims to implement technological solutions such as the ones mentioned above would hopefully allow local logistics companies to catch up with the likes of USA and China. It is certain that technology will be the key future driver of the industry and companies that fails to innovate and keep up with current advancements will falter.

E-Commerce Boom

The rapid growth of E-commerce is a direct result of the advancement in technology (see: alternative payments) , further compounded by the increase in proportion of middle class in Asia Pacific, greater mobile and Internet penetration and increase in number of E-Commerce players. The global e-commerce market is projected to more than double by 2020, growing from US$1.7 trillion to US$3.6 trillion. China represents the world’s largest e-commerce market with US$590 billions of goods sold in 2015. In Singapore alone, total online spending is estimated to have reached S$2.6 billion in 2016 and is expected to hit S$3.4 billion in 2017. Given that the current logistical landscape in Singapore is unoptimised, the explosive growth in e-commerce demand for business to consumer deliveries of retail purchases represents an opportunity for the logistics services market to grow. Local venture capital funded start-ups such as Ninja Van and Anchanto have already taken initiative, capturing S$1.75 billion in market share in 2016 as compared to just 266 million in 2013, though increasing competition have resulted in decline of pricing power and reduced profitability. Market leader Singpost has set their sights even higher, restructuring its traditional approach and opening a S$182 million Regional eCommerce Logistics Hub with an aim to become a regional leader in ecommerce logistics. With Singapore’s extensive reach across the region, stable financial infrastructure and a tech-savvy population, the foundation is present for local logistics companies to capitalise on this opportunity.

Upsides & Downsides


1. Singapore’s prime location and significant economic influence in Asia.

Picture source: Ho Wah Foon, ‘China projects to hit Singapore’ ,retrieved from http://www.thestar.com.my/news/nation/2017...

According to the Singapore Logistics Association, history of Singapore’s freight forwards development can be traced back to the 19th century. Singapore locates at the heart of the Asia Pacific, and serves as the geographical linkage of Europe, India, China and the U.S. Prime location makes Singapore the ideal springboard for logistics and provides excellent connectivity that shapes Singapore as one of the busiest port worldwide. Approximate 80% of the world’s maritime trade among Europe, Asia and the U.S pass through the strait of Malacca, which is the linkage of Indian Ocean and Pacific Ocean and major economies in Asia area. Besides, its advanced technology, world-class infrastructure and efficient supply chain management jointly contribute to Singapore’s position as a global logistics hub. According to the Singapore statistics bureau, logistics industry contributed 5.3% of the total GDP in 2015. Changi airport is Asia’s second largest cargo airport that dealing with 2 million tons of cargo annually.

2. Collaborations between shippers and top global 3PLs (Third-party logistics).

Picture source: Digimag Industry Report 2017, Supply Chain Asia, retrieved from http://supplychainasia.org/wp-content/uplo...
The future trend of logistics inclined towards collaborative partnerships. According to the 21st annual third-party logistics study, services provided by leading 3PLs have benefited 75% of shippers who use logistic from cost deduction and efficiency improvement. Diligent effort was also made in the aerospace logistic subsector through collaborations with 3PLs including DHL, DB schenker, Kuehne +Nagel ad SDV, which are several top global logistic players based in Germany, Switzerland and France. Nowadays, 20 out of top 25 logistic players embarked their operations in Singapore, examples can be Sankyu (Japan), UPS (U.S) and Yusen Logistics (Japan). Additionally, the three-year collaboration between P&G and The logistics Institute - Asia Pacific focused on supply chain research. It seems like that the current pattern of Singapore’s logistic industry is sharing the pie, which indicates incumbents within the industry pursue efficiency by collaborating and sharing the network, and this pattern will lead to greater connectivity and low-cost competition.

3. People’s changing consumption preference.
With the penetration of e-commerce, growing number of consumers like online shops avidly. It sounds like clichés, but growing deliveries is prompting the evolution of the modern logistic industry. Last mile logistic refers to the segment where parcel is delivered from transportation hub to the final recipient, and it is a result of rising e-commerce. In Singapore, people who shopping online form a stream of logistic demand. Company like Singapore post launched robotics and automation such as unmanned vehicles in deliveries to ease the pressure manpower. Further innovation in logistics operation is foreseeable.


Picture source: ‘The trains and sea ports of One Belt, One Road, China's new Silk Road’, Strait Times, retrieved from http://www.straitstimes.com/asia/the-train...

1. PM Lee’s absence in China’s ‘One belt, one road ‘forum and possible influence of the project.
Infrastructure is the key pillar of China’s Obor plan, which intends to build a network of railways, ports and roads that links China closer to other Asian countries, Africa as well as Europe. The relationship between China and Singapore became more sensitive after the ‘Terrex incident ’and South China sea issue. Hence, the absence of Singapore’s prime minister Lee Hsien Loong in Obor forum should be a concern. Obor may provide an alternative to the traditional sea route of trade that go through Singapore, also, port & railway constructions in both Malaysia and Indonesia can bring Singapore threats to its advantageous logistic position.

2. Competition brought by Malaysia.

Picture source:http://www.spad.gov.my/land-public-transpo...

Malaysia is one of the biggest threats to Singapore’s logistic industry. As mentioned previously, China planned to invest in Malaysian ports construction through its Obor project. Once China accomplished the construction in Malaysia, numerous of trade may be shifted from Singapore to Malaysia. Malaysia and China have signed the contract for RM55Bil East Coast Railway Line (ECRL), and it functions as a channel that links Port Klang, Kuantan Port and others lied in the East Coast. In other words, after the complete of ECRL, China can ship their goods from Port Klang to Kuantan Port by using inland railway in Malaysia, in lieu of go through Singapore port. At the same time, goods can be transferred by the same route but with the reverse direction. It turns out that hundreds of millions of China-bound goods from Thailand, Middle East and Indonesia can be shipped through the Port Klang-ECRL-Kuantan route, and Singapore will suffer from the shifted trade, without which Singapore should has gained. Apart from development of new route, facilities of all existing ports in Malaysia will be enhanced by using the belt-road funds for various types of ships and services.

Key Players


Singapore Post Limited provides postal, logistics, and retail services in Singapore and internationally.

Mail segment offers services for collecting, sorting, transporting, and distributing domestic and international mail.

Logistics segment offers a range of logistics solutions, including freight, warehousing, domestic and international distribution, and delivery services.

Retail & eCommerce segment provides various products and services, such as agency services, financial services, and front-end e-commerce solutions.


CWT Limited provides integrated logistics and supply chain solutions for small establishments and multinational corporations in Singapore and internationally.

Logistics Services segment provides warehousing, transportation, freight forwarding, cargo consolidation, collateral management, and container management services, as well as supply chain management services and container management services; This segment serves commodities, defense, food and beverage, freight forwarding, marine, and petrochemicals and chemicals industries.

Commodity Marketing segment offers physical trading and supply chain management services for base metals, including copper, lead, zinc, and other minor metals, as well as energy products, such as diesel, gasoline, naphtha, and distillates.

Company also offers Engineering Services and Financial Services, which occupies a lower proportion of revenue and net income.

$Poh Tiong Choon(P01)

Poh Tiong Choon Logistics Limited, together with its subsidiaries, provides logistics services to the petrochemical industry in Singapore. It operates through four segments: Transportation and Bulk Cargo, Warehousing, Trading, and Leasing.

The company offers transportation services for high value, sensitive, and chemical cargo in various forms, including conventional, general containers, bulk and bulk liquid containers; owns cargo vehicles comprising prime movers, trailers, and other vehicles, such as refrigerated trucks, tipper trucks, and general usage lorries, as well as heavy haulage equipment.

It also engages in the provision of bulk cargo handling and stevedoring services; and warehousing, drumming, and related services comprising drum filling of chemical products, open and covered warehouse storage, cold room storage, inventory management, and local and international freight management, as well as storage and distribution of loaded containers.

In addition, the company is involved in the sale of diesel fuel; rental of industrial property; property development activity; equipment leasing and general contracting activities; and providing terminal management services.

$Keppel T&T(K11)

Keppel Telecommunications & Transportation Ltd, an investment holding company, provides integrated logistics services and supply chain solutions.

Logistics segment provides integrated logistics port operations, third-party logistics services, supply chain solutions, warehousing, distribution, container storage and repairs, and freight forwarding services primarily in Singapore, China, Malaysia, Indonesia, and Vietnam.

Data Centre segment provides data center co-location services, business continuity, disaster recovery, facility management, and real estate investment trust management services primarily in Singapore, Ireland, the Netherlands, Australia, the United Kingdom, Germany, and Malaysia. This segment also provides technical support services.

Keppel T&T Ltd is also involved in the food trading, shipping agency, and fund management activities; provides and trades in communications system and accessories; and develops and trades in industrial property rights. Keppel Telecommunications & Transportation Ltd is a subsidiary of Keppel Corporation Limited.


YCH Group Pte Ltd. provides integrated end-to-end supply chain management and logistics solutions for suppliers, manufacturers, brand owners, resellers, consumers, and original equipment manufacturers in the Asia Pacific.

It offers Intribution, a Web-enabled manufacturing logistics solution for managing the flow of raw materials, information, and financial transactions; Intrabution, a solution for consumer goods fulfillment, order management and fulfillment, and e-commerce fulfilment; and Retrogistics, a solution that manages the service and returns logistics for retailers when their products require after-sales parts replacement, warranty returns, and servicing, as well as provides parts and components inventory management, auto replenishment, and spare parts delivery to facilitate on-site after sales service.

The company also provides lead logistics provider and third party logistics services, such as freight management, transportation and distribution management, and warehousing and inventory management services.

The company was founded in 1955 and is based in Singapore. It also has operations in Malaysia, Thailand, Indonesia, China, Hong Kong, the Philippines, Australia, India, Vietnam, and Korea.


GKE Corporation Limited, an investment holding company, provides logistic services in Singapore and the People’s Republic of China. The company’s Third Party Logistics segment offers various logistics services, including non-ferrous metal storage, general warehousing, containers trucking, conventional transportation, project logistics, and international multimodal sea and air freight forwarding services.

Its Shipping Logistics segment is involved in building and chartering of vessels. The company’s Infrastructural Logistics segment produces and sells environmental friendly lightweight bricks, building materials, and cement products. It also provides crane services for loading and unloading of cargo.

The company was formerly known as Van der Horst Energy Limited and changed its name to GKE Corporation Limited in April 2012. GKE Corporation Limited was founded in 1995 and is based in Singapore.

Sector Financials

As industry is dominated by large cap companies with unusually depressed earnings such as Singpost, average P/E ratios may be slightly skewered upwards. ROE is lower than STI ETF, showing that logistics sector underperformed the overall market. ROE of logistics sector usually range from 5% to 15%, showing that Singapore’s logistic companies are underperforming global counterparts.

Logistics industry margins are traditionally low. However, Singapore logistics were exceptionally low at 2.4% operating margin and 1.7% net margin due to slowdown of container volumes and increased competition both domestically and regionally. Businesses have also been negatively generating free cash flow.

Due to the significant capital expenditure and fixed assets required for logistics, high D/E ratio of 58.3%. Global logistics sector usually have D/E between 40% to 150%, hence Singapore’s logistics sector is still relatively unlevered. Revenue 3-year CAGR also decreased due to slowdown in logistics sector and Port of Singapore volumes since 2014.

For industry-specific ratios such as fixed mileage costs ratio, variable cost ratio and deadhead costs, I couldn’t find an industry average. However, investors will do well to search the financial statements of individual companies for such disclosures.

Don't forget to cast your vote on your favourite stock in the comments below before the market opens tomorrow at 9am!

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22 likes 27 comments

Hi everyone, the analysis on cogent is finally here! https://www.investingnote.com/posts/130077


Looking forward to Cogent too. Any more potential earnings momentum, looks like slowing EPS growth, share price stucked in limbo for long time. Time to accumulate or time to distribute ?


looking forward to cogent analysis


Poh Tiong Choon for me! i dont see cogent in the list?


Our apologies, the winner is $Cogent(KJ9). Our analysts will proceed to cover it...so stay tuned!


Reply to @TheSignalBlog : looking forward to the reports


poh tiong choon


Poh Tiong Choon!


poh tiong choon

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Amazon Prime in Singapore: A Game Changer?

This column is written by @j_chou from InvestingNote.com.

@J_chou has an interest in global macro trends, financial markets and equity research and enjoys applying a combination of the three in his investments. His eventual investing goal is to manage a risk parity portfolio and achieve true financial freedom.

-@J_Chou is vested in $BABA

Singapore and Southeast Asia’s growing E-commerce industry

According to a 2015 report done by Google and Temasek Holdings South-east Asia’s Internet economy is expected to surge to US$200 billion by 2025, driven by a growing middle class and greater accessibility to the Internet. For Singapore, the e-commerce market is projected to grow at 32% CAGR to be worth US$5.4billion in 2025. The Prime Now launch reaffirmed the importance of South-east Asia for digital commerce, with Singapore chosen as a testbed likely due to its tech-savvy, affluent citizens and accessibility to the rest of the region.

Amazon Prime

The launch of Prime in Singapore, Amazon’s express delivery services, signals Amazon’s entry into the Southeast Asian market. Prime will allow Singaporeans to place orders on groceries and retail items and have them delivered as fast as within 2 hours of confirming an order.

There are several delivery options given: For orders below 40 dollars, users pay a S$5.99 delivery fee; orders above S$40 are delivered free in a two-hour delivery window. For those wanting to get their goods within an hour, they pay up to S$9.99 per order.

The reason why Amazon is able to deliver so quickly is due to their superior automation and supply chain management. Using a series of complex algorithms and data the company is able to enhance productivity in middle and last mile logistics. The level of automation that is employed by Amazon is simply impressive: https://www.youtube.com/watch?v=UtBa9yVZBJM.

Unfortunately, as the Singapore market is still in its infancy the warehouse at Jurong East are mostly dependent on humans. Nevertheless, there are still some form of technologies used by the Singapore facility such as artificial intelligence and concepts such as random stow systems. This involves using spatial design and algorithms to locate items across the warehouse based on order frequency. More details of the Singapore warehouse operations could be found at http://www.channelnewsasia.com/news/singap....

Amazon is also employing third-party logistic providers such as Ninja Van to provide last mile delivery instead of utilizing its own as it seeks to establish market presence first before importing its extensive network of logistic services.

Besides their advantage in technology, being the largest online retailer in the world gives Amazon the ability and the economies of scale to offer premium brands at a discount that local retailers are unable to compete with.

Amazon’s impact on SGX stocks

There is a good reason why many herald Amazon as “the most disruptive force in retail and technology”, and its ability to force retail titans such as Walmart and Best Buy to adapt is a stark reminder of its influence. Many are also predicting the death of retail in the US: Bank of America Merrill Lynch estimates that US retail floorspace is down 10 per cent since 2010, while department store sales are down 18 per cent. In 2017, the retail industry has lost an average of 9,000 jobs per month, despite the US labour market reporting positive growth.

US Retail Statistics: Online Retail vs. Department Stores

It is indeed hard to imagine a world where traditional retail will be able to compete with the low cost and convenience provided by online retail in the future, assuming that proper infrastructure is in place. Hence, it is my view that Amazon’s entry heralds the decline for traditional retail stocks, such as $DairyFarm USD(D01.SI), $Sheng Siong(OV8.SI). So any optimistic outlook of future growth for retail stocks should be treated with caution, especially if the company has not given any signals that they are looking to adapt to the online platform.

Retail REITs such as $BHG Retail Reit(BMGU.SI), $CapitaMall Trust(C38U.SI), $Frasers Cpt Tr(J69U.SI) , $Mapletree Com Tr(N2IU.SI) and $Suntec Reit(T82U.SI) may also be hit. URA figures show that the retail vacancy was at a relatively high 7.7 per cent at the end of the first quarter of 2017, despite softening rentals. As in the case in other mature economies such as the US, several high-profile brick-and-mortar players have closed shop in recent years, including department stores John Little and Marks & Spencer, lifestyle and furnishing stores IWannagohome and FrancFranc as well as fashion outlets Parco and Raoul. As e-commerce increases its market share, retail vacancies could climb even as rentals continue falling.

I have noticed that some IN members are doubtful of the impact that Amazon will have on the local retail scene, with a handful already expecting Amazon to fail to consistently deliver on its promise of 2-hour deliveries. Some also opined that online shopping cannot deliver the same kind of quality assurance as offline shopping.

I would thus like to share my personal experience: I was also quite averse to online shopping and have never done so before I went to study abroad in the UK this year. In the UK where shopping online is quite prevalent, I was encouraged by my British friends, who mostly use online delivery to shop, to make use of the service for my grocery shopping. This was despite the fact that there were supermarkets within walking distance from our campus. I was decidedly blown away by how cheap and fast the service was. The delivery fee came to only 2 pounds (which was cheaper than travelling by bus to the supermarket) and I never had any issues with food quality. I never did my grocery shopping in supermarkets since, only visiting for the occasional one-off perishable goods. I have also used Amazon Prime for online shopping. If you purchase an item stocked in the local warehouse the order can be processed really quickly. Another example of how insanely efficient Prime service is, was when I ordered a cake from a bakery located in London and it was able to deliver it to me 10 hours later at a location that was 2.5 hours away by train! I have no doubt that once Amazon has adapted to the local market it will be able to consistently deliver on its 2-hour delivery promise.

Hence, my contention is that due to the poor logistics infrastructure here, Singaporeans have not had the comprehensive experience of shopping online as compared to our overseas counterparts from USA and China as of yet. But once the likes of Amazon and Lazada have fully integrated into the Singapore markets the negative impact of its technology prowess on traditional retail will be swift.

The Singapore logistics industry will also likely be affected if Amazon was to build a strong customer base in Southeast Asia. Notably $SingPost(S08.SI) who is working closely with Alibaba. Amazon has a “unhealthy” habit of eventually internalizing all phases of its supply chain management, with rumours that the company is aiming to replace the likes of DHL, UPS or FedEx to create a global supply chain. Hence current third-party logistic providers such as Ninja Van may find themselves becoming obsolete in the long run. Leveraging logistic technology has always been Amazon’s expertise, thus unless the logistics companies can keep pace with the technological innovation that Amazon is likely to deploy, Amazon may unseat existing freight services within the next decade.

Amazon vs. Alibaba

I thought it will be interesting to do a comparison of the two biggest e-commerce giants given that the competitive dynamics between the two will have a material impact on the direction of Southeast Asia’s e-commerce market and its economy.

Though the two companies are often seen as comparable, they operate on very different business models.

Alibaba's core business model is more B2B and resembles that of eBay. Alibaba acts as a middleman and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free C2C marketplace where neither sellers nor buyers are assessed a fee for completing transactions. Hence, Alibaba simply facilitates trade and does not interfere in any part of the transaction. Alibaba’s services are thus popular for small to medium businesses as it gives them the ability to sell their goods to anyone on the globe for a very low cost.

Amazon are more customer-centric and place more focus on a B2C model, selling goods directly to consumers. Amazon purchase the goods directly from producers and sells them on their platform with the inventory being kept in the company's large network of warehouses. This allows Amazon to compress cost and their turnover high. In addition to direct sales, Amazon also provides a platform for other retailers to sell products to buyers. Products sold through Amazon's partner retailers are often less common items or those with a higher purchase price, allowing Amazon to avoid holding slow-moving inventory that could dilute profit. But, as recent acquisitions such as the purchase of Whole Foods has shown Amazon’s eventual aim is to internalize all services to maximize efficiency of its supply chain management. Currently, to secure market dominance Amazon’s is aggressively pushing for top-line growth with an apparent disregard for their bottom-line.

At first glance, you can see that Alibaba’s model is more favorable for businesses but Amazon’s model is more favorable for consumers. I personally prefer Alibaba’s model as I believe that small and medium enterprises are the backbone of any economy, and a model that is favorable for businesses will be beneficial for both producers and consumers in the long run. Small retailers simply cannot compete with Amazon given the growing dependency on online retail and the fact that Amazon can always sell at a lower price given its economies of scale.
Their approach to establishing presence in Southeast Asia is also different. The regional market is very fragmented, but with Amazon’s entry consolidation is expected to come soon.

Alibaba has already enjoyed the first mover advantage by focusing on inorganic acquisitions: investing an 83% stake in Lazada (who also owns RedMart), Southeast Asia’s largest ecommerce platform and a majority shareholding in Singpost, Singapore’s premier logistics provider. The fact that both Lazada and Singpost are based here has already given Alibaba presence in the region, which Amazon may find hard to overcome. However, when it comes to consumer trust I may be underestimating the effect of Amazon’s branding, given Singapore consumers preference for US companies over their Chinese counterparts and its existing base of loyal customers. But given that both companies have already established a certain level of consumer trust, in my opinion the advantage will eventually come down to cost. The company that is able to present itself as the cheaper option for consumers will establish market dominance. This will be determined by how quickly both companies will be able to develop new disruptive technology, such as in the field of artificial intelligence and drone delivery, which could significantly reduce cost and improve delivery time. Ultimately consumers will stand to benefit the most from the price reductions as both companies seek to prioritise growth over profits, and I can foresee this scenario being played out for the next few years.

Uber vs. Grab vs. Taxis

The battle amongst Uber, Grab and taxis shows how disruptive technology can be. Initially many found the idea of ride sharing unfathomable, but within 2 years of its introduction Uber and Grab has already crippled the taxi industry. Uber and Grab are able to keep pricing competitive due to its geolocation and data technology, which the traditional taxi industry are unable to compete with. Hence, the taxi industry is forced to adapt and innovate or risk being forgotten. Though some may view the artificial pricing as temporary, it must be noted that these companies are still constantly innovating in the meantime to drive down cost and improve margins. For Uber and Grab, the race is on to see which company is able to develop a system of self-driving cars first, as this will eliminate their biggest expense (the drivers) and hence enjoy dominance in pricing.

I see many parallels in the online vs traditional retail battle. There may be resistance initially, but once the convenience of online shopping catches on, especially in Singapore where technology adoption rate is high, the effect will be felt quickly. Amazon and Alibaba will compete to have more promotions and artificially drive down pricing to make online delivery attractive. The sheer size of the companies will allow them to do so for many years. Once market share has been established, the advancement in technology by then will allow prices to remain equally low as operational efficiency and margin improves. Hence, as seen in the case of Walmart in the US, traditional retail will be forced to move to the online platform or risk losing its customer base to existent online counterparts.


It will be folly to underestimate the impact of ecommerce on traditional retail. The online experience is vastly superior to traditional shopping and the growing dominance of online retail over brick and mortar in countries with established ecommerce presence is proof of that. At the end of the day, online retail will always be the better alternative: providing the same quality of goods at a lower cost and greater convenience than traditional retail could never achieve. Even if one may argue that online shopping will never replace the tangible experience of going to a physical shop and inspecting the goods, what is stopping consumers from simply visiting and then making their purchase online if it is cheaper? Hence, anyone who views traditional retail companies as stable and resilient based on the past should look to the taxi industry as a prime example of why nostalgia and tradition simply will not last. In the age of technology, companies must innovate or die.

All research reports are of the analysts’ personal opinions and do not in any way reflect InvestingNote’s official opinion. InvestingNote does not issue a buy or sell recommendation on any security, and any research paper published by The Signal Blog is purely for informative purposes. This research is based on current public information, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual InvestingNote users. InvestingNote users should consider whether the information in this research is reliable, and suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of investments referred to in this research and the investment income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

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$SingPost(S08.SI) : From snail mail to eCommerce.

This column is written by @j_chou.
Jay has an interest in global macro trends, financial markets and equity research and enjoys applying a combination of the three in his investments. His eventual investing goal is to manage a risk parity portfolio and achieve true financial freedom.

Company Overview

Singapore Post Limited is the national postal service provider in Singapore. Besides providing domestic and international postal and courier services, the company also offers end-to-end e-commerce logistics solutions.

Key Highlights

-Decline in 4Q17 logistics revenue

Logistics revenue of S$154.7m in 4Q17 was down 7% quarter to quarter after enjoying continued growth seen in previous quarters. Operating margin in the logistics segment decreased from 6.2% in FY16 to 3.7% in FY17. This could be likely due to Quantium Holdings and Famous Holdings being affected by depressed freight rates and volumes across the freight forwarding industry.

-Strong topline growth in ecommerce segment at the expense of operating losses

SP eCommerce experienced positive revenue growth across segments, especially in the eCommerce segment where it experienced 171% increase year on year. The growth could be attributed to opening of ecommerce logistics hub with clients such as Adidas and Zalora and acquisition of US subsidiary Jagged Peak and TradeGlobal. Jagged Peak saw good growth in revenue and operating profit, exceeding targets for the year and winning several new major customers. However, whilst Jagged Peak and SP eCommerce performed well, TradeGlobal’s underperformance led the eCommerce division into a net operating loss of S$33.8 million.

-Impairment of TradeGlobal

The principal issue is that TradeGlobal has significantly underperformed the business case which supported the investment. Instead of a projected profit of S$9.4 million for FY17, TradeGlobal incurred a significant loss of S$25.8 million.

Management has reported that it was due to a labour shortage in Cincinnati increased operating costs, which were impacted as well by delays in warehouse automation that were meant to improve productivity. The operational challenges also saw delays in the rollout of services for new customers. Management foresee continuing period of difficulty for the subsidiary.

-Change in dividend payout structure

Management has decided to revise dividend policy from a stable dividend payment to one based on a payout ratio of 60-80% of earnings paid quarterly due to ongoing investments in ecommerce and other growth projects.


-Strategic partnership with Alibaba

Alibaba acquired a 34% stake in Quantium Solutions International, a subsidiary, for S$86.2m in October 2016. The company also issued 107.55m new shares to Alibaba, increasing Alibaba’s holding in SPOST to 14.41% for S$187m. Under this strategic partnership, Quantium Solutions International will act as the platform for collaboration between the two companies, which would improve efficiency and integration in the e-commerce logistics industry.
Furthermore, the partnership has also assisted the postal segment as the company has seen increased transhipment volumes. As Alibaba continues to expand globally and in Southeast Asia at an accelerated rate, SingPost can look to benefit from this partnership.

-Southeast Asia’s first E-commerce integrated logistics hub

The e-commerce logistics hub has seen increasing utilisation for both its warehouse space and parcels sorting machine. With investment phase of the hub mostly done, the increase in volume will drive earnings growth. For instance, in May 17 the company announced that it is working with Lazada, Southeast Asia’s largest ecommerce platform and a subsidiary of Alibaba who has committed to move its entire warehouse operations to the logistics hub.

-Commencement of Singpost Centre Retail Mall in 2H17

The new retail mall within the SingPost Centre will have a Gross Floor Area of around 25,000 square metres, which is about double that of the former mall before renovation works commenced. Tenants of the new mall include NTUC FairPrice, Golden Village, Kopitiam and many other leading retail brands. The company has also signed an agreement with CapitaMall Asia to manage the mall.

Key Financials

Segment Breakdown:

Data from Capital IQ Database

SingPost has seen minimal growth in Postal and Logistics segment, eCommerce segment has improved by 171%, which was largely contributed by the newly acquired US subsidiaries.

Data from Capital IQ Database

However, growth in revenue has not translated into profits. In fact, net profit attributable to shareholders decreased 86.6 per cent from FY16 to S$33.4 million. Even excluding one-off charges, underlying net profit declined 24.7 per cent, reflecting the impact of planned investments, associates which are investing for growth, higher losses in the US eCommerce business and a decline in Postal operating profit.

Data from SingPost FY17 Annual Report

SingPost has consistently generated positive operating cash flows. Net cash from operating activities rose to S$200.1 million from S$131.4 million the previous year, boosted by positive working capital movements. High capital expenditure in FY16 and FY17 has affected free cash flow, but with the completion of the retail mall in 2H17 and eCommerce logistics hub the company should return to consistent free cash flow generation from FY18 onwards.

Balance sheet of SingPost is also relatively healthy, with cash and cash equivalents at S$366.6 million with total debt of S$364 million, resulting in a net cash position.

Analyst Opinion

As communicated by the management in FY17 annual report: “Given the structural decline of our domestic letter mail business, it is vital we advance our transformation into an eCommerce logistics enabler, leveraging on our strategic location and core assets to serve the region’s growing eCommerce markets”

Traditional post is a dying industry; hence it is clear SingPost has shifted its focus onto restructuring its business model from traditional courier to ecommerce logistics player. Hence, expect a transitional period of 2-3 years as management prioritises expansion and aggressive topline growth over profits. The short to mid-term period will definitely pose a significant challenge given the competitiveness of the fast-growing ecommerce industry, however given the company’s economies of scale and strategic partnership with Alibaba, reaching its goal of becoming Southeast Asia’s premier ecommerce logistics provider should prove achievable.

Prospect of falling dividends also poses a big issue as SingPost is traditionally seen as a dividend play for local investors, hence the new inconsistent dividend scheme will likely scare off these investors and have a negative effect on the stock.

Lastly another point to note is the recent change of management which coincided with the shift in direction of the business model. This creates an inherent business risk and it remains to be seen if the new CEO is the right fit to steer SingPost towards eCommerce growth.

Overall, lack of positive catalysts and expected decline in profits from management represents a limited upside and signals that the stock will likely stagnate or fall in the short to mid-term of 1-3 years. Therefore, only invest in SingPost if you are in for the long term and believe in SingPost’s future market position amidst Southeast Asia’s rapid ecommerce growth. However, in the short term it is more advisable to divest capital elsewhere and await more positive developments in the ecommerce segment before investing.


Fair Value: $1.360

I used a two-stage Dividend Discount Growth Model, with the first stage projecting earnings until FY2020 with a conservative CAGR of 5% to account for earnings to stabilize; factoring in lowering margins in eCommerce and logistiscs segment given increasingly competitive climate and decline in postal segment and increase in revenue of around S$10million in rental from SPC mall. The second stage will project a Gordon growth model.

WACC comes to 6.02%. Discount rate using CAPM model to calculate cost of equity (using SSB rate as risk-free rate and 10 year STI return as market return) arriving at 7.0%. SingPost cost of debt arrives at 1.92% with a weighted average of debt holdings.

Assuming conservative 2.0% terminal growth, fair value of SingPost arrives at $1.36 (0% upside). Hence, without any new developments SingPost valuation is fairly valued at the current market price.

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