Thursday, May 29, 2014

Singapore Post Ltd - Open sesame

What Happened 
Alibaba plans to invest S$312.5m in SingPost for the purchase of 30m existing treasury shares and 190m new ordinary shares at S$1.42/share. This gives Alibaba a 10.35% stake in SingPost, making it the second largest shareholder behind SingTel. The two parties also signed an MOU to negotiate a potential JV that will create a platform for international e-commerce logistics. 

What We Think 
We are positive on Alibaba’s investment as: 1) the new source of funding will open the door to new investment opportunities in e-commerce logistics regionally, 2) SingPost will benefit from tremendous business volumes originating from Alibaba’s e-commerce businesses, and 3) the enlarged scale of the business will bring cost efficiencies, giving SingPost leverage over its competitors in a price-competitive ASEAN market. We expect the positive impact to show up in Quantium Solutions (higher warehousing and fulfilment demand), Famous Holdings (freight forwarding) and international mail (higher transhipment volumes and last-mile delivery). Near term dilution not a big concern. While SingPost guided that FY14 EPS would have been 10.4% lower with the equity issuance, we think that the dilutive impact will only be in the near term (FY15), as the synergies created and growth from the new JV should outweigh the dilution from FY16 onwards. 

What You Should Do 
Maintain Add. SingPost is showing steady progress in transforming into a regional e-commerce logistics player, and its collaboration with Alibaba will provide it with fuel to expand more aggressively in the region, with stronger earnings growth potential both organically and via M&As.

Monday, May 19, 2014

Singapore Post Ltd - Post-dated potential

Results highlights 
4QFY14 revenue grew 5.9% yoy on the back of: 1) higher transhipment volumes, 2) growth in vPOST shipments, and 3) full recognition of contributions from Lock+Store and Famous Holdings, acquired in 4QFY13. Excluding the two acquisitions, organic revenue growth was 3% – slower than the run-rate of 6-9% in recent quarters due to seasonality and the sale of Clout Shoppe during the quarter. Core net profit declined marginally (-1.3% yoy) as a result of the higher restructuring and development costs (estimated S$15.5m, of which S$9m was for e-commerce and S$6.5m for the mail segment). 

Ongoing e-commerce expansion 
SingPost is showing promising signs of progress in the e-commerce space, with over 600 e-commerce customers now, double last year’s 300. SingPost is also rapidly expanding its overseas presence – Quantium Solutions (its primary vehicle for e-commerce logistics growth) recently set up a JV in Indonesia to provide warehousing and freight forwarding services, and Lock+Store will soon introduce its self-storage services in Malaysia. SingPost’s strong net cash position of S$170.3m (3QFY14: S$134.6m) leaves room for further acquisitions in the e-commerce logistics space, which can provide potential earnings uplift. 

Maintain Add on post-transformation growth potential 
SingPost declared a final DPS of 2.5 Scts, bringing total DPS to 6.25 Scts. This rewards investors with an attractive yield of 4.3% while waiting for earnings growth to come post-transformation. We think that SingPost is positioned to benefit from the rising demand for e-commerce logistics solutions in the region, given its low-cost advantage and full suite of services provided.