Author: kktan
SingPost – OCBC
Alibaba takes a stake
- Issues
shares to Alibaba at S$1.42/share
- Longer term growth
- Dilutive effect in the short term
Share issuance to Alibaba at S$1.42/share
Following a trading halt yesterday morning, SingPost announced that it has entered into an investment agreement with Alibaba Investment Ltd (wholly owned subsidiary of Alibaba Group Holding Ltd), under which Alibaba Investment will buy 30m existing ordinary shares held in treasury by SingPost and 190.096m new ordinary shares. The total 220.096m shares represent 11.55% of SingPost’s existing issued and paid-up share capital (excluding treasury shares), and upon completion, Alibaba will hold 10.35% of SingPost. The subscription price is at S$1.42/share, translating to gross proceeds of S$312.5m for SingPost.
What it means for SingPost
Both companies also signed an MOU to allow them to discuss and negotiate a JV in the business of international e-commerce logistics. From SingPost’s point of view, besides the creation of new relationships and opportunities for strategic cooperation with Alibaba, this move will allow it to benefit from Alibaba’s expertise in e-commerce and business volumes. In particular, priority will be given to SingPost’s logistics services (e.g. when Alibaba needs to ship goods to certain parts in SE Asia) based on commercial terms. SingPost will also have to step up on its investment efforts to achieve the full regional value chain of ecommerce logistics that is able to handle Alibaba’s volumes. By obtaining access to more of Alibaba’s volumes, SingPost would be able to obtain a scale effect and bring down cost per unit of good handled, though it is hard to quantify the near term impact given the lack of details so far.
Dilutive effect; FV drops to S$1.38
We assume a higher terminal growth rate in our FCFE valuation (2.5% vs 2% previously) due to a possibly higher growth potential over the longer term, but after taking into account the dilutive effect of the placement, our fair value estimate drops from S$1.42 to S$1.38. Maintain HOLD, though we note that sentiment on the stock may be strong in the near term due to factors such as the “Alibaba effect”
SingPost – OCBC
Alibaba takes a stake
- Issues
shares to Alibaba at S$1.42/share
- Longer term growth
- Dilutive effect in the short term
Share issuance to Alibaba at S$1.42/share
Following a trading halt yesterday morning, SingPost announced that it has entered into an investment agreement with Alibaba Investment Ltd (wholly owned subsidiary of Alibaba Group Holding Ltd), under which Alibaba Investment will buy 30m existing ordinary shares held in treasury by SingPost and 190.096m new ordinary shares. The total 220.096m shares represent 11.55% of SingPost’s existing issued and paid-up share capital (excluding treasury shares), and upon completion, Alibaba will hold 10.35% of SingPost. The subscription price is at S$1.42/share, translating to gross proceeds of S$312.5m for SingPost.
What it means for SingPost
Both companies also signed an MOU to allow them to discuss and negotiate a JV in the business of international e-commerce logistics. From SingPost’s point of view, besides the creation of new relationships and opportunities for strategic cooperation with Alibaba, this move will allow it to benefit from Alibaba’s expertise in e-commerce and business volumes. In particular, priority will be given to SingPost’s logistics services (e.g. when Alibaba needs to ship goods to certain parts in SE Asia) based on commercial terms. SingPost will also have to step up on its investment efforts to achieve the full regional value chain of ecommerce logistics that is able to handle Alibaba’s volumes. By obtaining access to more of Alibaba’s volumes, SingPost would be able to obtain a scale effect and bring down cost per unit of good handled, though it is hard to quantify the near term impact given the lack of details so far.
Dilutive effect; FV drops to S$1.38
We assume a higher terminal growth rate in our FCFE valuation (2.5% vs 2% previously) due to a possibly higher growth potential over the longer term, but after taking into account the dilutive effect of the placement, our fair value estimate drops from S$1.42 to S$1.38. Maintain HOLD, though we note that sentiment on the stock may be strong in the near term due to factors such as the “Alibaba effect”
Singtel – Maybank Kim Eng
SingPost opens up to Alibaba
- Alibaba, one of the world’s most successful e-commerce companies, is investing SGD312.5m in associate SingPost.
- A strategic collaboration could raise the valuation of SingTel’s 25.8% stake in SingPost. Every 35 SGD cts rise in SingPost’s share price adds 1 SGD ct to SingTel’s SOTP valuation.
- Reiterate BUY on SingTel with SOTP-based TP of SGD4.35.
Alibaba taking a 10% stake in SingPost
Singapore Post, a 25.8%-owned associate of SingTel (23.5% post placement), has announced an investment by Alibaba Group, which is seeking an IPO in the US. Post deal, Alibaba will own 10.35% or 220.1m SingPost shares. The SGD312.5m proceeds will be used for e-commerce investments or M&A in Southeast Asia and upgrade of IT systems related to e-commerce logistics (33%), M&A and property development (33%), and general working capital (34%).
A slight positive for SingTel’s valuation
Alibaba, one of the world’s most successful e-commerce companies, runs a highly-popular Taobao online marketplace. Its B2B platform is reported to power 80% of online commerce in China, and its Alipay e-payments system processed USD519b in online payments in 2013, nearly three times the USD180b cleared by PayPal. On the other hand, SingPost has built a successful e-commerce logistics platform mainly in Southeast Asia.
The two companies have signed an MOU to discuss a partnership that will allow Alibaba’s customers and merchants to have access to SingPost’s international logistics capabilities, infrastructure and delivery networks.
SingPost accounts for SGD0.05 (or 1%) of our SOTP value of SGD4.35 for SingTel. Alibaba’s entry could raise the valuation of SingPost over time. In the medium term, we believe the market will shrug off the fact that the placement price of SGD1.42 is lower than the pre-trading halt price of SGD1.55. Every 35 SGD cts gain in SingPost’s share price will add 1 SGD ct to our SOTP TP for SingTel.
Singtel – Maybank Kim Eng
SingPost opens up to Alibaba
- Alibaba, one of the world’s most successful e-commerce companies, is investing SGD312.5m in associate SingPost.
- A strategic collaboration could raise the valuation of SingTel’s 25.8% stake in SingPost. Every 35 SGD cts rise in SingPost’s share price adds 1 SGD ct to SingTel’s SOTP valuation.
- Reiterate BUY on SingTel with SOTP-based TP of SGD4.35.
Alibaba taking a 10% stake in SingPost
Singapore Post, a 25.8%-owned associate of SingTel (23.5% post placement), has announced an investment by Alibaba Group, which is seeking an IPO in the US. Post deal, Alibaba will own 10.35% or 220.1m SingPost shares. The SGD312.5m proceeds will be used for e-commerce investments or M&A in Southeast Asia and upgrade of IT systems related to e-commerce logistics (33%), M&A and property development (33%), and general working capital (34%).
A slight positive for SingTel’s valuation
Alibaba, one of the world’s most successful e-commerce companies, runs a highly-popular Taobao online marketplace. Its B2B platform is reported to power 80% of online commerce in China, and its Alipay e-payments system processed USD519b in online payments in 2013, nearly three times the USD180b cleared by PayPal. On the other hand, SingPost has built a successful e-commerce logistics platform mainly in Southeast Asia.
The two companies have signed an MOU to discuss a partnership that will allow Alibaba’s customers and merchants to have access to SingPost’s international logistics capabilities, infrastructure and delivery networks.
SingPost accounts for SGD0.05 (or 1%) of our SOTP value of SGD4.35 for SingTel. Alibaba’s entry could raise the valuation of SingPost over time. In the medium term, we believe the market will shrug off the fact that the placement price of SGD1.42 is lower than the pre-trading halt price of SGD1.55. Every 35 SGD cts gain in SingPost’s share price will add 1 SGD ct to our SOTP TP for SingTel.
TELCOs – Maybank Kim Eng
All in; SingTel raised to BUY
- Raise sector weighting to OVERWEIGHT as we upgrade SingTel to BUY. M1 remains our preferred BUY, followed by SingTel.
- M1 will enjoy stronger EPS CAGR of 8.5% over FY14E-16E, while SingTel is on the cusp of an earnings recovery of 5% EPS CAGR after three consecutive years of earnings decline.
- Growth pillars: Data monetisation and falling handset subsidies, with data roaming rebound a bonus.
Upgrade SingTel to BUY, sector to OVERWEIGHT
We upgrade SingTel to BUY with a SOTP-based TP of SGD4.35. We are now BUYers of all the three telcos, prompting us to raise the sector to OVERWEIGHT. In terms of preference, M1 remains our top choice, followed by SingTel which displaces StarHub to the third position. Despite challenges on the Pay TV and home broadband front, StarHub remains a BUY. We believe SingTel’s YTD under-performance and current low market expectations provide room for the stock to be re-rated ahead of StarHub.
Alignment of positive trends
In our view, the building blocks are fast falling in place and were evident in 1Q14 results. Data monetisation accelerated in 1Q14, driving mobile revenue to record levels with growth rate at its fastest in more than four quarters. Tiered data plan users have also hit new highs of more than 50%, and we expect 70% by year-end. Fast-falling handset subsidies are another positive trend that would benefit margins. Lastly, data roaming has finally stabilized after six quarters of YoY decline. The upshot: Stronger earnings growth prospects for the industry.
Catalysts: (1) Data monetisation could take place faster than expected with emphasis on video content to drive data usage. Both SingTel and StarHub are developing more local content for their apps. (2) Data roaming could make a comeback on plans to make it easier to activate or even kick in automatically when users are overseas. (3) Low levels of gearing, especially for M1 and StarHub, and the absence of large capex requirements in the medium term suggest room for higher dividends ahead.
Risks: As the telcos expand the capabilities of their networks to handle newer services such as VoLTE (Voice over LTE) and the greater demand for video content, there could be network outages. Regulatory fines aside, the key risk lies in higher user churn owing to unstable networks. One risk particular to SingTel is an acquisition of Shin Corp as was rumoured a few months ago, which we would view cautiously if it materialises.