SingPost – OCBC

Seeks to expand network in Malaysia

Acquires more interest in express carrier service provider. Singapore Post (SingPost) yesterday announced that it had acquired 56.8m shares of GD Express Carrier Berhad (GDEX), a company listed on the ACE Market of Bursa Malaysia Securities Berhad, through block trades. The total consideration was about RM45.47m (~S$18.9m), or RM0.80/share, and is payable in cash. SingPost’s shareholding in GDEX will increase from 4.98% to 27.08% and GDEX will become an associated company. The weighted average price of GDEX shares on 14 Mar 2011 was RM0.82/share, which is similar to the consideration paid by SingPost, though we note that GDEX’s stock price has risen more than 40% YTD. Its NTA/share is RM0.16, based on audited financial statements for FY10.

GDEX’s network spans East and West Malaysia. GDEX is an express carrier service provider in Malaysia which offers express delivery and customized logistics services. According to its website, GDEX operates a network of 96 stations, comprising 53 branches, two affiliate stations and 41 agents throughout East and West Malaysia. The group’s net profit margin has ranged between 2.6% and 7.3% from FY06-FY10, while ROE has generally been on the uptrend from 3.7% in FY06 to about 14.0% in FY10.

Rationale for acquisition. SingPost currently has a presence in Malaysia through Quantium Solutions, its wholly-owned subsidiary which specializes in cross-border mail and logistics within the region. Its acquisition of GDEX shares should allow it to leverage on GDEX’s resources and network to grow its presence in Malaysia. It is worth noting that SingPost has been collaborating with GDEX in the logistics business and a good working relationship exists between both parties, hence increasing the chances of a successful collaboration.

Maintain HOLD. As part of its diversification and regionalization strategy, SingPost has been actively looking at M&As and investment opportunities, and we expect more of such news to come. However, pending more news and concrete details of its expansion strategy, we maintain our HOLD rating and fair value estimate of S$1.16 on SingPost for now. Meanwhile, amidst weak investor sentiment from the developments in Japan, from a tactical asset allocation point of view, investors may consider rotating into stocks such as SingPost considering its 1) stable operating cash flows with little exposure from Japan, 2) relatively lower beta, and 3) attractive dividend yield of 5.4%.

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