"why would SIA have set up the Cargo as a separate entity"
Main reason: To get rid of main line FTL:s which were badly suited for Cargo.
If you factor in that almost every Cargo captain hired was an expat the unit cost per captain wasn't much lower than before the split.
Total remuneration for an expat captain in cargo has been about 10 % lower than for main line but that's mostly due to less flying hours. There are other things that are worse in Cargo though; staff travel, leave days and the fact you can't use the school allowance outside of Singapore.