Wednesday, March 26, 2014

Singapore Post Ltd - More than just a mailman

The mailman finds a new job 
SingPost has all the last-mile assets to deliver mail anywhere in Singapore. Mail delivery is a sunset industry but SingPost’s assets are still good for delivering a variety of goods in the world of e-commerce. The business only requires tweaks to 1) refine its infrastructure to deliver parcels, in addition to mail; 2) add last-mile delivery capabilities in Asia; and 3) add end-to-end e-commerce logistics solutions – all of which SingPost is doing via investments or M&A.   
Filling the gap in e-commerce logistics 
SingPost’s competitive advantage over its postal peers and other 3PL (third-party logistics) players is its ability to provide a full spectrum of e-commerce logistics solutions at low costs. This is made possible by its access to: 1) postal-to-postal rates (governed by the Universal Postal Union); 2) bilateral agreements with other countries; and 3) partnerships with low-cost couriers. It also constantly enhances its capabilities with acquisitions. As no other postal player in Asia has moved into e- commerce (due to government mandates) and 3PL providers do not have access to such low delivery costs, SingPost has a clear advantage in costs and service offerings.   
Paid to wait 
SingPost used to be one of Singapore’s high yield stocks although it was operating in a sunset industry. With its new push into e-fulfilment, it will have a unique blend of growth and yield. The old business will still fund its dividends, while its net cash of S$135m will allow for earnings-accretive acquisitions that can aid its strategic repositioning. Our estimates have not factored in complementary assets and acquired earnings from its S$135m net cash pile. In the meantime, investors are receiving an attractive dividend yield of 4.7% while waiting for SingPost to turn into a swan.

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