Singpost – CIMB
Groundwork firmly in place
SingPost’s end-to-end ecommerce logistics offering complements its key competitive advantage of being the lowest cost provider, and allows it to tap into a wider customer base. With a good structure firmly in place, the next step would be to replicate its model across the region to expand its network. We keep our Add rating and DCF-based target price of S$1.96 (7% WACC), with the key re-rating catalyst being a potential JV with Alibaba. Apart from
this, M&As in ecommerce logistics will also speed up its regional expansion.
SingPost hosted a site tour to view its end-to-end suite of ecommerce logistics services. These range from front-end solutions such as website design to back-end services including warehousing and last-mile delivery.
What We Think
With a full suite of ecommerce logistics solutions, we believe SingPost has laid the groundwork for regional expansion. While most third-party logistics (3PL) providers mainly focus on warehousing and delivery, SingPost’s added services allow it to capture a wider audience, from international brands looking to set up a standalone online retail presence (monobrand channel) to SMEs that want to list their products on an online marketplace (multibrand channel). SingPost views the monobrand segment as a key growth area, given that consumers trust brands’ official websites more than online marketplaces, especially in less ecommerce-ready markets like Indonesia. Moreover, with the exception of website design, the infrastructure and systems needed to run an ecommerce operation for each brand are the same, thus making it highly scalable. As logistics is a volume game, we think that SingPost needs to ramp up order flow to capture efficiency gains and keep its pricing competitive. Order flow is limited by customer acquisitions, which have shown promising signs (doubled from 300 to 600 ecommerce customers as at end-FY14) but still need to expand more rapidly. A potential tie-up with Alibaba could bring in bigger volumes, not only through Alibaba’s expansion into ASEAN, but also a global ecommerce logistics platform that will be made available to third-party users.
What You Should Do
SingPost’s share price has traded sideways since its run-up in Jun when it announced that Alibaba was taking a stake in SingPost. Even the news of a postage rate hike, which we estimate would lead to 6-7% EPS accretion, barely moved its share price. We believe the next re-rating hinges on the potential JV with Alibaba to set up an international ecommerce logistics platform. M&A opportunities in ecommerce logistics also remain a key catalyst for the stock.