Singpost – CIMB

Winner takes all

In a price-competitive industry where the winner takes all, having Alibaba as a strategic partner will ensure that SingPost can scale up and obtain sufficient volumes to become the lowest cost provider. Furthermore, Alibaba’s decision to partner SingPost rather than other regional logistics providers reaffirms the company’s leading position in e-commerce logistics. We maintain our Add rating and DCF-based target price of S$1.86 (WACC 7.1%). The potential key catalysts are rising e-commerce activity and potential M&As.

What Happened

We hosted CFO, Ng Hin Lee and Deputy CFO, Daniel Phua at our 4th Annual Asia Pacific Conference, where they met with over 30 fund managers. Discussions centred on the recently announced collaboration with Alibaba and its M&A plans.

What We Think

Alibaba collaboration will multiply volumes. While details of the JV with Alibaba are yet to be set in stone, SingPost believes that its partnership with Alibaba has the potential to increase shipment volumes by 3-4x. We think these volumes will come gradually rather than overnight as 1) both parties will need to integrate their back-end systems, and 2) SingPost will over time build significant scale across the region, funded by Alibaba’s S$312m investment and its net cash of S$170m.

Potential M&A in Indonesia. SingPost has identified Indonesia as a key market in Southeast Asia where it is lacking sufficient presence. Its subsidiary and key logistics arm, Quantium Solutions, set up a JV in Indonesia this year after the government relaxed laws which previously restricted foreign firms from owning a stake in logistics companies. SingPost sees more room for growth through M&A in Indonesia as the current JV only serves the island of Java and there is also a need to establish delivery networks in other parts of the country. A study by eMarketer forecasts that B2C e-commerce sales in Indonesia will rise by 37% in 2015, just second to China’s 43% and double the global average of 18% (Fig 1), which makes Indonesia a huge untapped market.

What You Should Do

Stay invested. SingPost offers an attractive dividend yield of 4% while also providing potential earnings upside from the collaboration with Alibaba and M&A activity as it expands its regional e-commerce logistics operations.

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