SingPost – CIMB

Acquires 30% of Postea

Acquires Postea, a technology development company for postal services

SingPost announced this morning that it will be acquiring 30% of USA-incorporated Postea Inc. SingPost will be making a cash payment of US$9.4m and a non-cash consideration comprising intellectual property (IP) rights for its own SAM, SAM PLUS, retail system POST21 and vPOST online bill payment system to Postea valued at US$24.3m. A cash payment of US$6.4m is to be paid on 28 May 09, with the remaining US$3.0m to be paid in equal instalments of US$1m over three years on 31 Dec 09, 31 Dec 10 and 31 Dec 11. The investment will be funded by internal resources.

Postea. Postea was founded in 2007. It develops and operates companies which provide technology and support the retail environment in postal, courier and other distribution markets. It is involved in R&D and through its subsidiary, Innovations Group, Inc., is currently the prime contractor for the USPS Contract Postal Units project. With this new investment from SingPost, Postea will be able to accelerate its research and development of innovative solutions to transform postal and logistics industries globally.

Rationale for investment. SingPost “will leverage Postea’s expertise and technology to further enhance and develop its own intellectual property (IP)… SingPost aims to tap the market potential of the resultant IP together with Postea”.

Comments

In line with strategy. This is not a surprise to us as SingPost reportedly has been eyeing strategic investments for some time. This is SingPost’s second acquisition this year. In April, SingPost acquired 100% of G3 Worldwide Aspac (G3AP), which allows it to exercise full control over the operations of G3AP, in line with its intention to expand its regional business. We believe that the two acquisitions will benefit SingPost in the long term, enhancing its core postal business. With growth in its domestic postal business fairly limited, given the small population in Singapore, we are encouraged by SingPost’s move to tap regional markets via G3AP and further enhance its IP rights via Postea.

No changes to earnings estimates. As technology development and IP enhancement would take time, we make no changes to our earnings estimates for now. SingPost has indicated that its minimum dividend payout of 5 Scts p.a. will not change.

Valuation and recommendation

Maintain Neutral and DDM-derived target price (discount rate 8.5%) of S$0.80. Although dividend yields are attractive at 6-7%, we remain Neutral on the stock given limited share-price upside. Key risks to our rating would include a change in its dividend policy and higher-than expected costs.

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