SingPost – CIMB
SingPost’s strategic partnership with Alibaba opens doors via access to funds for larger-scale M&As and the opportunity to leverage on Alibaba’s customer base to scale up its regional e-commerce logistics operations. We raise our FY16-17 EPS by 2-3% to factor in higher transhipment and e-commerce logistics volumes, but cut our FY15 EPS by 6% due to share dilution post-equity issuance. Our DCF-based target price rises to S$1.86 (WACC 7.1%). We maintain our Add call, with potential M&As and growing e-commerce volumes are the key catalysts.
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 fulfillment 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.